INTCH142004 - CHAPTER 14: LONG-TERM LIABILITIES...

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CHAPTER 14: LONG-TERM LIABILITIES Objectives/Focus: 1. Nature of long-term liabilities and terminology. 2. Bonds: Accounting for issuance and future interest payments/amortization including bonds issued between interest dates. 3. Bonds: Accounting for extinguishment of debt. 4. Notes: Accounting for issuance and future interest payments/amortization. 5. Off-balance sheet financing: types and necessary disclosures. 6. Overview: Troubled Debt 1
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Objective 1: Long-term liabilities: obligations not payable within operating cycle (or year) which normally require formal agreement containing covenants and restrictions for protection of lender. Important Terms Indenture Term vs. serial Bonds Mortgage Bonds Junk Bonds Debenture Bonds Convertible Bonds Income Bonds Callable Bonds Registered vs. bearer or coupon bonds Treasury Bonds 2
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Accounting for issuance of bonds and future interest payments, amortization Bonds can be sold for face value, at a discount or at a premium. What the bond is sold at is determined by a comparison of the bond’s contract rate and the existing market rate. The market rate is a reflection of what the market considers an acceptable return (risk of issuer). Example: If the bond’s stated or contract rate (what the interest payments will reflect) = 12% a. and market assessment or rate = 12%, then the bond will sell for face value. b. and market assessment or rate = 10%,
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This note was uploaded on 02/15/2010 for the course MGMT 201 taught by Professor Aacc during the Spring '10 term at Anne Arundel CC.

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INTCH142004 - CHAPTER 14: LONG-TERM LIABILITIES...

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