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‫اسم الطالب‬
‫كود الطالب‬
‫رقم الجلوس‬
‫الشعبة‬
‫الفرقة‪/‬المستوي‬
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‫الجزء خاص بأعمال الكنترول‬

‫تاريخ اإلمتحان‬
‫تاريخ التسليم‬
‫‪-1‬‬ ‫أسماء السادة‬
‫‪-2‬‬ ‫المصححون‬
‫‪-3‬‬
‫رئيس الكنترول‬

‫‪1‬‬
 ( criteria influencing long term debt versus equity financing
in industry)
Introduction
Debt financing is the process of raising money in the form of a secured or
unsecured loan for working capital or capital expenditures. Firms
typically use this type of financing to maintain ownership percentages and
lower their taxes.

Equity financing is a tactic businesses often use to raise funds, especially

in the case of startups that are in need of cash or businesses who are
looking to expand but don't have the capital to do so.

There are a few things small business owners should know about equity
financing before seeking to secure it

Second part
Long term debt:

Long-term debt consists of probable future sacrifices of economic

benefits arising from present obligations that are not payable within a year
or the operating cycle of the company, whichever is longer. Bonds
payable, long-term notes payable, mortgages payable, pension liabilities,
and lease liabilities are examples of long term liabilities.

A corporation, per its bylaws, usually requires approval by the board of

directors and the stockholders before bonds or notes can be issued. The
same holds true for other types of long-term debt arrangements.

1) Bonds Payable :

A bond arises from a contract known as a bond indenture.

A bond represents a promise to pay

(1) a sum of money at a designated maturity date, plus

(2) periodic interest at a specified rate on the maturity amount (face value).

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Parties of bonds:

1) Issuer: it is the corporation that issue bonds and is obligate to pay:

A) Periodic interest.

B) Face value at the maturity date

2) Bondholders or investors: they are Creditors to the corporation and

they will and receive face value and the end of maturity date .

Types of Bonds

1) Secured and unsecured Bonds:

2) Term and Serial Bonds:

3) Register and Bearer Bonds:

4) Convertible and callable Bonds.

5) Commodity backed and deep discount bonds

6) Income and revenue bond

Accounting for Bond Issues

1- Bond may be issued at interest dates :

A. Face value B. at a discount. C. at premium.

Present value of the bond

Present value of its expected future cash flows, which consist of (1)
interest and (2) principal

The rate of interest actually earned by the bondholders is called the

effective yield or market rate. If bonds sell at a discount, the effective
yield exceeds the stated rate.

Conversely, if bonds sell at a premium, the effective yield is lower than

the stated rate.

Several variables affect the bond’s price while it is outstanding, most

notably the market rate of interest

Amortization of Discount or Premium

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There are two methods to amortize bond discount or premium:

1) Straight-line method.

The straight line method: results in constant of amortization and interest

expense per period but varying percentage rate.

The straight line and effective interest methods result in the same total
amount of interest expense over the term of the bond

2) Effective interest method

Both the effective-interest and straight-line methods result in the same

total amount of interest expense over the term of the bonds. However,
when the annual amounts are materially different, generally accepted
accounting principles require use of the effective-interest method

Accounting for Bonds Extinguishment:

As the maturity or face value will also equal the bond’s fair value at that
time, no gain or loss exists.

In some cases, a company extinguishes debt before its maturity date.7 The
amount paid on extinguishment or redemption before maturity, including
any call premium and expense of reacquisition, is called the reacquisition
price. On any specified date, the net carrying amount of the bonds is the
amount payable at maturity, adjusted for unamortized

premium or discount, and cost of issuance. Any excess of the net carrying
amount over the reacquisition price is a gain from extinguishment. The
excess of the reacquisition price over the net carrying amount is a loss
from extinguishment

Chapter 15: stock holders' equity:

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Owners’ equity in a corporation is defined as stockholders’ equity,
shareholders’ equity, or corporate capital.

The following three categories normally appear as part of stockholders’

equity:

1. Capital stock.

2. Additional paid-in capital.

3. Retained earnings.

Stockholders’ (owners’) equity represents the cumulative net

contributions by stockholders plus retained earnings. As a residual
interest, stockholders’ equity has no existence apart from the assets and
liabilities of Disney—stockholders’ equity equals net assets.

Stocks:

1) first class of stocks issued: Common stock

2) additional class of stocks issued is Preferred stock.

Stocks may be issued for cash

Or Stock Issued in Noncash Transactions

Accounting for the issuance of shares of stock for property or services

involves an issue of valuation. The general rule is: Companies should
record stock issued for services or property other than cash at either the
fair value of the stock issued or the fair value of the noncash
consideration received, whichever is more clearly determinable

Issuance of Stock

 A corporation issues two or more classes of securities for a single

payment or lump sum, in the acquisition of another company.
 Two methods of allocating proceeds:

1. Proportional method.

2. Incremental method.

Reacquisition of Treasury Stock:

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 The possession of treasury stock does not give the corporation the
right to vote, to exercise preemptive rights as a stockholder, to
receive cash dividends, or to receive assets upon corporate
liquidation. Treasury stock is essentially the same as unissued
capital stock
 Treasury stock: is a corporation's own stock that has been issued
full paid for, and subsequently re-acquired by the corporation from
shareholders, but not retired.

Preferred stock dividends must be distributed before common

stock dividends such as:

1. Cash dividends.

2. Property dividends.

3. Liquidating dividends.

4. Stock dividends

 All dividends, except for stock dividends, reduce the retained

earning then total stockholders’ equity in the corporation.

Third part:

The greatest advantage of financing with is the tax deductions, as in

most cases, debt related interest payments is viewed as a
business expense on the firm’s balance sheet

Equity financing is a common way for businesses to raise capital by

selling shares in the business. This differs from debt financing, where
the business secures a loan from a financial institution

Reference list:

1) Intermediate accounting.
2) Lecture notes.
3) Lecture power point.