Q9RQ - Horngren'S Financial And Managerial Accounting

Question

Why would a company choose to issue bonds instead of issuing stock?

Step-by-Step Solution

Answer

The common stock is a type of stock in which the company transfers some part of ownership to the stockholder.

Step 1: Definition of bonds

The bonds are long-term debt that the company raises by issuing bonds to filfill the need for a large amount of money.

Step 2: Issue bonds instead of issuing stock

There are two reasons for a company choose to issue bonds instead of issuing stock:

1. Bonds are less expensive than common stock.
2. In the common stock, a company has to share ownership, but in the bonds, the company does not share the company ownership.