Review the posts of your peers, and respond to at least two. For each response, address any discrepancies between your findings and your peer's. Seek clarification for any aspects of the post that are not clear to you.
Student 1:
Benefits of bonds
Bonds are a good way to raise capital versus more traditional financing methods such as issuing stocks or borrowing from a bank. There are three primary ways in which bonds can be beneficial. First, bond holders do not have vote on company issues and do not share in company earnings like shareholders do. Second, companies can deduct the interest that is paid to bondholders whereas they would not be able to deduct the money they pay in dividends. Third, money from bonds can be borrowed at a low interest rate. Companies can then use the money obtained from bonds to reinvest at a higher interest rate (Libby, Libby, & Short, 2014).
Reflecting a bond on the statement of cash flows
When my company receives money from a bond, they would add this to the statement of cash flows as an inflow of cash from financing activities. When my company pays cash on the principal balance of these bonds, they would record this transaction as an outflow of cash from financing activities. Financial statement users would use this information to determine how much money is owed in bonds and how much interest is paid to bond holders each year (Libby, Libby, & Short, 2014).
References:
Libby, R., Libby, P. A., & Short, D. G. (2014). Financial accounting (8th ed.) [Custom text bundle]. New York, NY: McGraw-Hill.
Student 2:
For this discussion, assume the role of a business owner who has to make a decision to raise additional capital. What considerations would you evaluate relative to issuing bonds as compared with conventional financing methods? How would you reflect the bond transactions on your statement of cash flows, and how would the financial statement users use that information?
As a business owner who has made a decision to raise additional capital, issuing bonds serve a vital role in maintaining the competitive strategy and overall survival potential of a given firm. That is because issuing bonds are very helpful in a firm's initiatives. Issuing bonds gives organizations freedom to operate as they see fit verses using a loan from a bank. Example, the bank often times suggest that they should not create any more debt until the loan is paid off. It is better for an organization to issue bonds between the investor and the interest rate is often times that a bank loan when money is needed. Issuing bonds as compared with conventional financing method . The issuance of the bond is done between the firm and their investor. This is considered a loan agreement. This agreement details an agreed upon term period in which the amount of money loaned gains interest at specific intervals. Also issuing bonds there are many different alternative more conventional financing methods.
References: Libby, R., Libby, P. A., & Short, D. G. (2014). Financial accounting (Eighth ed.).