121. For a long-term note payable, repaying a portion of principal along with interest payments is called loan amortization.
122. Davis Corporation borrowed $50,000 on January 1, 2016. The loan is for a ten-year period and has an annual interest rate of 9%. At the end of each year, Davis will make a payment of $7,791, which includes both principal and interest. The amount of the payment for 2016 that is interest expense is $4,500.
123. Davis Corporation borrowed $50,000 on January 1, 2016. The loan is for a ten-year period and has an annual interest rate of 9%. At the end of each year, Davis will make a payment of $7,791, which includes both principal and interest. The amount of the payment for 2016 that is reduction of principal is $3,587.
124. Davis Corporation borrowed $50,000 on January 1, 2016. The loan is for a ten-year period and has an annual interest rate of 9%. At the end of each year, Davis will make a payment of $7,791, which includes both principal and interest. With this loan, the amount of interest expense that Davis reports on its income statement will be the same for each year of the loan.
125. A line of credit is an agreement that allows a company to borrow a set amount of money for a period of one year or more.
126. A line of credit typically has an interest rate that is fixed (constant) for the length of the agreement.
127. Companies that issue bonds are required to pay the face value of the bonds at maturity and to make fluctuating periodic interest payments based on the market interest rate.
128. Serial bonds are issued based on the overall strength of the borrower's credit.
129. Bonds sold as separate components of a single issue may have different maturity dates.
130. If a company chooses to call some of its callable bonds before their maturity, generally it will have to pay an amount that is greater than the carrying value of the bonds.