4274160.ppt

7/17/2019 4274160.ppt

1/15

Chapter14-1

C H A P T E RC H A P T E R 1414

LONG-TERM LIABILITIESLONG-TERM LIABILITIES

Intermediate Accounting13th Edition

Kieso, Weygandt, and Warfield

7/17/2019 4274160.ppt

2/15

Chapter14-2

1. Describe the formal procedures associated with issuing long-term debt.

2. Identify various types of bond issues.

3. Describe the accounting valuation for bonds at date of

issuance.4. Apply the methods of bond discount and premium

amortiation.

!. Describe the accounting for the e"tinguishment of debt.

#. $"plain the accounting for long-term notes payable.%. $"plain the reporting of off-balance-sheet financing

arrangements.

&. Indicate how to present and analye long-term debt.

Learning ObjectivesLearning Objectives

Learning ObjectivesLearning Objectives

7/17/2019 4274160.ppt

3/15

Chapter14-3

Bonds Paa!"eBonds Paa!"eLon#-Ter$ NotesLon#-Ter$ Notes

Paa!"ePaa!"e

Report%n# andReport%n# and

Ana"&%n# Lon#-Ana"&%n# Lon#-

Ter$ 'e!tTer$ 'e!t

Issuing bondsIssuing bonds

Types and ratingsTypes and ratings

ValuationValuation

Effective-interestEffective-interest

methodmethod

Costs of issuingCosts of issuingExtinguishmentExtinguishment

Notes issued at faceNotes issued at face

valuevalue

Notes not issued atNotes not issued at

face valueface value

Special situationsSpecial situations

Mortgage notesMortgage notes

payablepayable

ff-balance-sheetff-balance-sheet

financingfinancing

!resentation and!resentation and

analysisanalysis

Long-Term LiabilitiesLong-Term Liabilities

Long-Term LiabilitiesLong-Term Liabilities

7/17/2019 4274160.ppt

4/15

Chapter14-4

Bonds PayableBonds Payable

Bonds PayableBonds Payable

Long-term debtconsists of probable futuresacrifices of economic benefits arising from present

obligations that are not payable within a year or the

operating cycle of the company' whichever is longer.

LO 1 Describe the formal procedures associated with issuing long-term debt

!"amples#

(onds payable

)otes payable*ortgages payable

+ension liabilities

,ease liabilities

,ong-term debt has variouscovenantsor restrictions

7/17/2019 4274160.ppt

5/15

Chapter14-(

$ssuing Bonds$ssuing Bonds

$ssuing Bonds$ssuing Bonds

LO 1 Describe the formal procedures associated with issuing long-term debt

(ond contract nown as a bond indenture.epresents a promise to pay/

01 sum of money at designated maturity date' plus

02 periodic interest at a specified rate on the maturityamount0face value.

+aper certificate' typically a 1' face value.

Interest payments usually made semiannually.+urpose is to borrow when the amount of capital needed is

too large for one lender to supply.

7/17/2019 4274160.ppt

6/15

Chapter14-)

Types and %atings of BondsTypes and %atings of Bonds

Types and %atings of BondsTypes and %atings of Bonds

LO & $dentify various types of bond issues

'ommon typesfound in practice/

ecured and 5nsecured 0debenture bonds'

6erm' erial' and 7allable bonds'

7onvertible bonds' 7ommodity-baced bonds' Deep-

discount bonds 08ero-interest debenture bonds'

egistered bonds and bearer or coupon bonds'

Income and evenue bonds.

Loo( Page )*1

7/17/2019 4274160.ppt

7/15

Chapter14-*

Types and %atings of BondsTypes and %atings of BondsTypes and %atings of BondsTypes and %atings of Bonds

LO & $dentify various types of bond issues

7orporate bond listings would loo lie those below.

7/17/2019 4274160.ppt

8/15

Chapter14-+

+aluation of Bonds , Discount and Premium+aluation of Bonds , Discount and Premium+aluation of Bonds , Discount and Premium+aluation of Bonds , Discount and Premium

LO Describe the accounting valuation for bonds at date of issuance

(etween the time the company sets the terms and thetime it issues the bonds' the maret conditions and

the financial position of the issuing corporation may

change significantly. uch changes affect the

maretability of the bonds and thus their selling price.

6he investment community values a bond at the

present valueof its e"pected future cash flows'

which consist of 01 interestand 02 principal.

7/17/2019 4274160.ppt

9/15

Chapter14-,

$nterest %ates

.tated' coupon' or nominal rate9 6he interest rate

written in the terms of the bond indenture.

/ar(et rate oreffective yield 9 rate that provides

an acceptable return on an investment commensurate

with the issuer:s ris characteristics.

ate of interest actually earned by the bondholders.



7/17/2019 4274160.ppt

10/15

Chapter14-1

;ow do you calculate the amount of interest that is;ow do you calculate the amount of interest that isactually paid to the bondholder each periodalue of the bond

;ow do you calculate the amount of interest that is;ow do you calculate the amount of interest that isactually recorded as interest e"pense by the issuer ofactually recorded as interest e"pense by the issuer ofthe bondsalue of the bond



Loo( Page )*& 0 )*

7/17/2019 4274160.ppt

11/15

Chapter14-11

1- Depends on *aret ate of interest1- Depends on *aret ate of interest

2- 7omputation of selling price/2- 7omputation of selling price/

- +> of maturity value' plus- +> of maturity value' plus- +> of interest payments' at what rate of interest payments' at what rate for 3 periods at &0+> for 3 periods at &

Bonds $ssued at ParBonds $ssued at ParBonds $ssued at ParBonds $ssued at Par

olution onolution onnotes pagenotes page

7/17/2019 4274160.ppt

14/15

Chapter14-14

$llustration#6hree year bonds are issued at face valueof 1' on @an. 1' 211' a stated interest rate of&' and maret rate of &.



7/17/2019 4274160.ppt

15/15

Chapter14-1(

$llustration# tated rate 9 &. *aret rate 9 &.



@ournal entries for 211/

1B1B11 7ash 1'

(onds payable 1'

12B31B11 Interest e"pense &'

7ash &'

.ee another illustration page )*6 0 )*7

4274160.ppt

Documents