Which of the following is an advantage of issuing bonds instead of common stock?
Advantages of Issuing Bonds Instead of Stock There are several advantages of issuing bonds (or other debt) instead of issuing shares of common stock: Interest on bonds and other debt is deductible on the corporation's income tax return while the dividends on common stock are not deductible on the income tax return.
Which of the following is a disadvantage of issuing bonds instead of common shares?
Disadvantage of issuing corporate bonds regular interest payments to bondholders - though interest may be fixed, the interest will usually have to be paid even if you make a loss.
Which is not an advantage of issuing bonds?
Answer: Earnings per share on common stock may be lower. What is this? The earnings per share on common stock may be lower is not an advantage of issuing bonds instead of common stocks.
What are the advantages and disadvantages of issuing bonds instead of issuing stock?
Perhaps the most important advantage to issuing bonds is from a taxation standpoint: the interest payments made to the bondholders may be deductible from the corporation's taxes. A key disadvantage of bonds is that they are debt. The corporation must make its bond interest payments.
What are the disadvantages of bonds?
The disadvantages of bonds include rising interest rates, market volatility and credit risk. Bond prices rise when rates fall and fall when rates rise. Your bond portfolio could suffer market price losses in a rising rate environment.
Which of the following is not an advantage of issuing bonds versus issuing stock to finance expansion?
The correct answer is c) Money can usually be borrowed at a lower rate and then invested to earn a higher return on assets. See full answer below.
What are the advantages of bonds over common stock?
Bonds tend to be less volatile and less risky than stocks, and when held to maturity can offer more stable and consistent returns. Interest rates on bonds often tend to be higher than savings rates at banks, on CDs, or in money market accounts.
Which of the following represents a disadvantage of issuing bonds?
The disadvantages of issuing bonds include the following: (1) because bonds are an increase in debt, they may adversely affect the market's perception of the company; (2) the firm must pay interest on its bonds; and (3) the firm must repay the bond's face value on the maturity date.
What are the pros and cons of bonds?
I Bonds Pros and ConsPro: High Returns. ... Pro: No Risk to Principal. ... Pro: Tax Benefits. ... Con: Limits on I Bond Purchases. ... Pro: Returns May Go Higher. ... Con: Must Be Purchased through the Treasury. ... Con: The Buying Process Can Be Problematic. ... Con: You Need to Document and Track Your Purchase.More items...•
Which of the following are advantages of issuing bonds?
Advantages to issuing bonds Retaining earnings: Issuing bonds allows a company to access capital much faster than if it first had to earn and save profits. As the saying goes, you have to spend money to make money. Selling assets: To sell assets, a company needs to have assets it's willing to sell.
What are some advantages and disadvantages of issuing stock?
Issuing Stock for Your Business – Advantages and DisadvantagesAvoid the liabilities of debt. The alternative to raising capital with stock is to go into debt. ... Liquidity. ... Attract investors. ... Diluted ownership. ... Less control. ... Legal risks.
What is one advantage of issuing bonds rather than issuing stock for a company quizlet?
one advantage to issuing bonds over stock is that the interest on bonds and other debt is deductible on the corporations income tax return. dividends on stock are not deductible on the corporations income tax return.
Does income to common shareholders increase?
Finally, income to common shareholders may increase to the extent the company is able to finance a project at a low interest rate and generate higher returns for the shareholders.
Do bondholders control the corporation?
Furthermore, bondholders do not control the corporation. As a result, the issuance of bonds does not dilute the percentage ownership of current shareholders and thus does not impact the shareholders’ control of the corporation.
Is earnings per share lower on common stock?
Answer: Earnings per share on common stock may be lower. The earnings per share on common stock may be lower is not an advantage of issuing bonds instead of common stocks.
What is a bond payable?
Bonds payable are a form of long-term debt, which include a formal agreement to pay interest semiannually and the principal amount at maturity.
Do bonds have to be diluted?
Since bonds are a form of debt, the existing stockholders' ownership interest in the corporation will not be diluted. Therefore, the future gains from use of the bond proceeds (minus the bond interest payments) will flow to the stockholders. This is related to the concept of leverage or trading on equity.
Do common stock dividends reduce earnings?
Shares of common stock are ownership interests in a corporation. There is no promise to pay dividends nor is there a maturity date. The dividends (if any are paid) do not reduce earnings nor do they reduce the corporation's taxable income.
Is dividend on common stock deductible?
There are several advantages of issuing bonds (or other debt) instead of issuing shares of common stock: Interest on bonds and other debt is deductible on the corporation's income tax return while the dividends on common stock are not deductible on the income tax return.
Which method applies a constant percentage to the bond carrying value to compute interest expense?
d. The effective interest method applies a constant percentage to the bond carrying value to compute interest expense
How are bonds sold?
a. Bonds are generally sold through an investment company
What is the difference between interest expense and interest to be paid?
c. The difference between the interest expense and the interest to be paid is the bond's par value
Which method of accounting requires use of the effective interest method?
a. GAAP requires use of the effective interest method
When is no entry required for engagement?
d. No entry is required when the engagement is concluded.