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Chapter 14 notes
Course: ACC 406, Spring 2012School: Tarleton
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14 Long-Term Chapter Debt - probable future sacrifices of economic benefits arising from present obligations that are not payable within a year. Examples: Mortgages Payable Long-term notes payable Bonds payable Capital leases - (chapter 21) Pension liabilities - (ACC 401) Long-term debt has various covenants or restrictions that protect both lenders and borrowers. Examples: amounts authorized to be issued - set...
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14
Long-Term Chapter Debt - probable future sacrifices of economic benefits arising from present
obligations that are not payable within a year.
Examples:
Mortgages Payable
Long-term notes payable
Bonds payable
Capital leases - (chapter 21)
Pension liabilities - (ACC 401)
Long-term debt has various covenants or restrictions that protect both lenders and
borrowers. Examples:
amounts authorized to be issued - set amount agreed to by both parties
interest rate - guaranteed amount of interest income
due date - guarantees the finality of the contract
call provisions - allows lenders to sell bonds early
property pledged - (secured loan) foreclosures
Bond Indenture - contract to establish a bond that promises to pay:
a sum of money at a designated maturity date
periodic interest payments
A company may either sell its own bonds to the public or to an investment bank, which acts
as the selling agent
Types of bonds:
Secured - backed by a pledge of some sort of collateral
Unsecured - not backed by any collateral and often referred to as debenture bond
Term - matures on a single date (most popular)
Serial - matures in installments
Convertible - able to be converted into other securities
Commodity-Backed - redeemable in measures of a commodity (oil, gold, silver)
(asset-linked)
Deep-discount as referred to as zero-interest debenture
Registered - actually registered to an individual
Bearer or Coupon - generic
Income - pays no interest unless the company generates a profit
Revenue - paid from a company's revenue sources
The issuance and marketing of bonds to the public is not an overnight process. It usually
takes weeks or even months.
The issuing company must arrange for underwriters to help market and sell the bonds
It must obtain the SEC's approval, which includes an audit and creation of a
prospectus
Must have the bonds actually printed
Between the time the company sets these terms and the time it issues the bonds, the market
conditions can potentially change. This will influence the selling price.
If the bonds sell for less than face value, it is considered a discount
If the bonds sell for more than face value, it is considered a premium
Two IMPORTANT facts in regards to bonds:
1. Interest will be paid based upon the interest rate printed on the face of the bond
2. The purchase price of the bond is based upon the market or effective interest rate
Issuance of $100,000 in bonds
Face value on the bond is 9% annual interest
Market value on the bond is 11% annual interest
The bond matures in 5 years
Bond is issued on 1/1/2009
Principal
Interest
100,000 * .09 =
Issuer of the Bond:
Cash
Discount on Bond Payable
Bonds Payable
Date
12/31/2009
12/31/2010
12/31/2011
12/31/2012
12/31/2013
0.09
Cash
9,000.00
9,000.00
9,000.00
9,000.00
9,000.00
100,000.00 PV =
9,000.00 PV =
Purchaser of the Bond:
Investment in HTM Bond
Discount on Bond Payable
Cash
92,608.21
7,391.79
(100,000.00)
0.11
Interest
Discount
10,186.90
1,186.90
10,317.46
1,317.46
10,462.38
1,462.38
10,623.25
1,623.25
10,801.80
1,801.80
First Interest Payment
Issuer
12/31/2009 Bond Interest Expense
Discount on Bond Payable
Cash
% = .11, n = 5, FV = -1
% = .11, n = 5, pmt = -1, type = 0
10,186.90
(1,186.90)
(9,000.00)
0.59345
3.69590
100,000.00
(7,391.79)
(92,608.21)
92,608.21
93,795.11
95,112.58
96,574.96
98,198.20
100,000.01
Purchaser
12/31/2009 Cash
Interest Income
Discount on HTM Bond
9,000.00
(10,186.90)
1,186.90
59,345.13
33,263.07
92,608.21
Ill. 14-4 & 14-5
$100,000 bond with an 8% face value on 1/1/2010 - it matures on 12/31/2014. Market rate is 10% annual
Interest is paid at the end of each 6-month period
Principal
Interest
100,000 * .04 =
100,000.00 PV =
4,000.00 PV =
Issuer
1/1/2010 Bond Payable
Discount on Bond Payable
Cash
0.04
Cash
6/30/2010
12/31/2010
6/30/2011
12/31/2011
6/30/2012
12/31/2012
6/30/2013
12/31/2013
6/30/2014
12/31/2014
4,000.00
4,000.00
4,000.00
4,000.00
4,000.00
4,000.00
4,000.00
4,000.00
4,000.00
4,000.00
% = .05, n = 10, FV = -1
% = .05, n = 10, Pmt = -1, type = 0
100,000.00
(7,721.73)
(92,278.27)
0.05
Interest
Discount
4,613.91
613.91
4,644.61
644.61
4,676.84
676.84
4,710.68
710.68
4,746.22
746.22
4,783.53
783.53
4,822.70
822.70
4,863.84
863.84
4,907.03
907.03
4,952.38
952.38
6/30/2013 Interest Expense
Discount on Bond Payable
Cash
4,822.70
(822.70)
(4,000.00)
92,278.27
92,892.18
93,536.79
94,213.63
94,924.31
95,670.52
96,454.05
97,276.75
98,140.59
99,047.62
100,000.00
$61,391.33
$30,886.94
$92,278.27
pg. 694 - 695
80,000 shares with par value of $10 is sold on 1/1/2010; interest will be 10% annual rate
interest is paid semi-annual for 10 years
Issuer
1/1/2010 Cash
Bonds Payable
Purchaser
Investment in HTM Bonds
Cash
800,000.00 80,000 * 10
(800,000.00)
Interest is paid semi-annual
800,000.00
6/30/2010 Interest Expense
Cash
40,000.00
(40,000.00)
*
0.05
800,000.00
(800,000.00)
40,000.00
Cash
Interest 695
80,000 Income
40,000.00
(40,000.00)
pg. shares with a par value of $10 is sold on 1/1/2010; interest is 10% annual rate and paid semi-annual
The bond was initially purchased at 97
Issuer
1/1/2010 Cash
Discount on Bonds Payable
Bonds Payable
Cash
1/1/2010
6/30/2010
12/31/2010
6/30/2011
12/31/2011
6/30/2012
12/31/2012
6/30/2013
12/31/2013
6/30/2014
12/31/2014
6/30/2015
12/31/2015
6/30/2016
12/31/2016
6/30/2017
12/31/2017
6/30/2018
12/31/2018
6/30/2019
12/31/2019
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
Interest
41,200.00
41,200.00
41,200.00
41,200.00
41,200.00
41,200.00
41,200.00
41,200.00
41,200.00
41,200.00
41,200.00
41,200.00
41,200.00
41,200.00
41,200.00
41,200.00
41,200.00
41,200.00
41,200.00
41,200.00
776,000.00 800,000 * .97
24,000.00
(800,000.00)
24,000 / 20
Discount
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
Issuer
6/30/2010 Bond Interest Expense
Discount on Bonds Payable
Cash
Purchaser
Investment in HTM Bonds
Discount on HTM Bonds
Cash
800,000.00
(24,000.00)
(776,000.00)
Balance
776,000.00
777,200.00
778,400.00
779,600.00
780,800.00
782,000.00
783,200.00
784,400.00
785,600.00
786,800.00
788,000.00
789,200.00
790,400.00
791,600.00
792,800.00
794,000.00
795,200.00
796,400.00
797,600.00
798,800.00
800,000.00
41,200.00
(1,200.00)
(40,000.00)
Purchaser
Cash
Discount on HTM Bonds
Interest Income
40,000.00
1,200.00
(41,200.00)
pg. 695
80,000 shares with a par value of $10 is sold on 1/1/2010; interest is 10% annual rate and paid semi-annual
The bond was initially purchased at 103
Issuer
1/1/2010 Cash
Premium on Bonds Payable
Bonds Payable
Cash
1/1/2010
6/30/2010
12/31/2010
6/30/2011
12/31/2011
6/30/2012
12/31/2012
6/30/2013
12/31/2013
6/30/2014
12/31/2014
6/30/2015
12/31/2015
6/30/2016
12/31/2016
6/30/2017
12/31/2017
6/30/2018
12/31/2018
6/30/2019
12/31/2019
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
40,000.00
Interest
38,800.00
38,800.00
38,800.00
38,800.00
38,800.00
38,800.00
38,800.00
38,800.00
38,800.00
38,800.00
38,800.00
38,800.00
38,800.00
38,800.00
38,800.00
38,800.00
38,800.00
38,800.00
38,800.00
38,800.00
Issuer
6/30/2010 Bond Interest Expense
Premium on Bonds Payable
Cash
824,000.00 800,000 * 1.03
(24,000.00)
(800,000.00)
24,000 / 20
Premium
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
1,200.00
Purchaser
Investment on HTM Bonds
Premium on HTM Bonds
Cash
800,000.00
24,000.00
(824,000.00)
Balance
824,000.00
822,800.00
821,600.00
820,400.00
819,200.00
818,000.00
816,800.00
815,600.00
814,400.00
813,200.00
812,000.00
810,800.00
809,600.00
808,400.00
807,200.00
806,000.00
804,800.00
803,600.00
802,400.00
801,200.00
800,000.00
38,800.00
1,200.00
(40,000.00)
Purchaser
Cash
Interest Income
Premium on HTM Bonds
40,000.00
(38,800.00)
(1,200.00)
$75,000 bond at 10% annual rate (face value)
The bond is purchased on 11/1/2008 for 3 years.
The market rate at the time of purchase is 7%
Interest is paid at the end of each 3-month period
Principle:
Interest
75,000.00
1,875.00 75,000 * (.10 / 4) or .025
11/1/2008 Cash
Premium on Bonds Payable
Bonds Payable
.10 / 4
Cash
11/1/2008
1/31/2009
4/30/2009
7/31/2009
10/31/2009
1/31/2010
4/30/2010
7/31/2010
10/31/2010
1/31/2011
4/30/2011
7/31/2011
10/31/2011
1,875.00
1,875.00
1,875.00
1,875.00
1,875.00
1,875.00
1,875.00
1,875.00
1,875.00
1,875.00
1,875.00
1,875.00
.07 / 4
Interest
1,418.22
1,410.22
1,402.09
1,393.81
1,385.39
1,376.83
1,368.11
1,359.24
1,350.21
1,341.03
1,331.68
1,322.17
12/31/2008 Interest Expense
Premium on Bonds Payable
Bond Interest Payable
1/31/2009 Interest Expense
Premium on Bonds Payable
Bond Interest Payable
Cash
0.81206
10.73955
81,041.00
(6,041.00)
(75,000.00)
Premium
456.78
464.78
472.91
481.19
489.61
498.17
506.89
515.76
524.79
533.97
543.32
552.83
Balance
81,041.00
80,584.21
80,119.44
79,646.53
79,165.34
78,675.74
78,177.56
77,670.67
77,154.91
76,630.12
76,096.14
75,552.83
75,000.00
1,250.00
945.48
304.52
(1,250.00)
472.74 1,418.22 - 945.48
152.26 456.78 - 304.52
1,250.00
(1,875.00)
12/10/2010, the bond is called for $74,124.55
12/10/2010 Bonds Payable
Cash
Premium on Bonds Payable
Gain on Called Bond
60,904.34
20,136.66
81,041.00
75,000.00
(74,124.55)
2,154.90
(3,030.35)
2/3
945.48
304.52
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Problem 9-57a. 3000/5000= 60%ExpenseProfessional dues & subscriptionsAirfare & LodgingLocal transportationEntertainmentTotalFor AGI (60%)1,000. a2,000PO1,000PO1,000.,00I5,000.,00From AGI (40%)600.001,200.00600.00600.00400.00800.0040
Tarleton - ACC - 406
Problem 11-47a.b.c.Stock is publicly traded, installment method is not available. Entire gain of$25,000 must be reported this year. The interest is reported as it accrues.Because the transaction results in a loss, the installment method isunavailab
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Problema.12-28FMV of equipment receivedBasis of equipment exchangedRealized gainRecognized gain (no boot,like kind exchange)Basis of propertyexchanged85,000.00(20,000.00)65,000.00020,000.00Less: Boot receivedPlus: Gain recognizedLess:Los
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Problema.12-28FMV of equipment receivedBasis of equipment exchangedRealized gainRecognized gain (no boot,like kind exchange)Basis of propertyexchanged85,000.00(20,000.00)65,000.00020,000.00Less: Boot receivedPlus: Gain recognizedLess:Los
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Chapter 13 HomeworkProblem 13-34a.Asset 1Asset 2Asset 3Sec 1231 gain15,000(17,000)5,0003,00015%450Increase in Taxb.Asset 1Asset 3Sec 1231 gain15,0005,00020,00015%Increase in Tax3,000Asset 2Ordinary LossTax Rate(17,000)(17,000)
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Chapter 13 HomeworkProblem 13-34a.Asset 1Asset 2Asset 3Sec 1231 gain15,000(17,000)5,0003,00015%450Increase in Taxb.Asset 1Asset 3Sec 1231 gain15,0005,00020,00015%Increase in Tax3,000Asset 2Ordinary LossTax Rate(17,000)(17,000)
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Problem 13-34aAsset #1Asset #2Asset #3Net Section 1231 gainIncrease in taxesbAsset #1Asset #3Net Section 1231 gain15,000.00(17,000.00)5,000.003,000.0015%450.0015,000.005,000.0020,000.0015%Increase in taxAsset #2Ordinary losstax rat
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Jeannie, a single taxpayer, retired during the year, to take over the managementof some rental property. She had the following items of income and expense:Salary prior to retirement dateDividends from domestic corporationCity of Los Angeles bondsPens
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Extra Credit for Exam #2Problem 1SalaryBond InterestInterest IncomeRental IncomeRepair expense2,400Property Taxes700Depreciation1,200Capital lossCapital GainAlimonyAdjusted Gross IncomeLess: Itemized DeductionsMortgage InterestReal Prope
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Tax Research Problem 4-63Facts Ann is a graduate student whom is awarded a $1,000 scholarship. Shes a half time teaching assistant at the State University and is paid $7,000 per year andher tuition costs are waived. Further, the cost of tuition would
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Tax Research Problem 5-70Facts The principals involved in this case are Tom Williams and the KansasCorporation. They are equal partners. During their partnership, Williams inventeda new process and the partnership had the process patented. Before usin
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Tax Research Problem 7-68FactsMr. Smith is the principle involved in a major accident in that his legs were severelyinjured in an automobile collision. Long term rehabilitation is the prescribedremedy by a physician. Furthermore, the physician prescri
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Tax Research Problem 11-65Facts Texas Corporations disassembles old automobiles for the purpose of resellingtheir components. At yearend inventory is done only by estimate of employees and old quotejournals.Issues When Texas has to pay for disposal
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AccountsReceivableCashAllowanceUncollectibleDue fromGeneral FundMaterials &Supplies1.2.3.L-TermAdvanceRestrictedAssetsUtilityPlantAccumDepr.Work inProcess4.AccountsPayableP/R TaxesPayableBondsPayable--NetAssets5.6.-Cost
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Proprietary Funds - funds that are used to account for activities similar to those often engagedin by profit-seeking businesses. That is, users of goods and services are charged amountsin hopes of at least covering the costs of providing those goods and
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Chapter 1In a free enterprise, why is government necessary?There are simply services that cannot be priced reasonably enough to encourageprivate interest. (education, fire and rescue) just because the average person maynot be able to afford these serv
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page 701.GeneralEstimated Revenues ControlBudgetary Fund BalanceAppropriations ControlEstimated Other Financing Uses Control1,350,000(50,000)(1,225,500)(74,500)SubsidiaryTaxesLicenses & PermitsIntergov't RevenueCharges for ServicesFines an
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Chapter 2State and local governments are encouraged to prepare a Comprehensive AnnualFinancial Report (CAFR) in accordance with GASB Codification Sec. 2200GASB does require the following minimum set of statements and disclosures thatmust be filed:1.
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Chapter 3Modified Accrual Basis accounting is a hybrid of sorts using elements of both accrual and cashbasisGovernmental funds do record receivable (taxes receivable) and liabilities (salariespayableModified accrual basis of accounting is only used f
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1.Using both fund accounting and government-wide accounting (which emulatesfor-profit accounting) create the journal entries for the following transactions:a.In the General Fund, an invoice is received to which a purchase order was notcreated for $25
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Jefferson CountyGeneral Fund Journal EntriesDecember 31, 20121Estimated RevenuesAppropiationsEstimated Other Financing UsesBudgetary Fund Balance250,000(180,000)(40,000)(30,000)2EncumbrancesFund Balance3RevenueDeferred Revenue4Taxes Rec
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State Government - Special Revenue FundFish and Game Fund Journal EntriesDecember 31, 2012bb3481Estimated RevenuesAppropiationsEstimated Other Financing Sources1,400,000(1,680,000)(300,000)2Budgetary Fund Balance - encumbrances3CashLicen
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1.CashOther Financing SourcesOther Financing UsesCashDR / (CR)720,000(720,000)20,000(20,000)2.Due From Other GovernmetnsOther Financing Sources-In3.EncumbrancesBudgetary Fund Balance-EncumbBudgetary Fund Balance-EncumbEncumbrancesExpendi
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Government -Wide AccountingGASB? - makes it mandatory for Government-Wide Accounting to be used alongwith fund accountingWhy?Most investors recognize financial statements as presented for a for-profit entity.The government has been trying to soicit o