WRD_ch14 - 11-114-1Long-Term Liabilities: Bonds and...

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Unformatted text preview: 11-114-1Long-Term Liabilities: Bonds and Notes1411-214-2Learning Objective 13-1Describe the nature of the adjusting process.Learning Objective 13-1Describe the nature of the adjusting process.Insert Chapter ObjectivesLong-Term Liabilities: Bonds and Notes1Compute the potential impact of long-term borrowing on earnings per share.2Describe the characteristics, and terminology of bonds payable.After studying this chapter, you should be able to:14-23Journalize entries for bonds payable.11-314-35Describe and illustrate the reporting of long-term liabilities including bonds and notes payable.14-3Long-Term Liabilities: Bonds and Notes (continued)4Describe and illustrate the accounting for installment notes.11-414-4Compute the potential impact of long-term borrowing on earnings per share.114-411-514-51BondA bondis simply a form of an interest-bearing note. Like a note, a bond requires periodic interest payments, and the face amount must be repaid at the maturity date.11-614-6Huckadee Corporation is considering the following plans to issue debt and equity:111-714-7Earnings per share (EPS)measure the income earned by each share of common stock. It is computed as follows:Earnings per share =Net Income Preferred DividendsNumber of Common Shares OutstandingData for Huckadee Corporation:1.Earnings before interest and taxes are $800,000.2.The tax rate is 40%.3.All bonds or stocks are issued at their par or face value.111-814-8Effect of Alternative Financing Plans$800,000 earnings.1Exhibit 111-914-91Effect of Alternative Financing Plans$440,000 earnings.Exhibit 211-1014-10Gonzales Co., is considering the following alternative plans for financing their company:Plan 1 Plan 2 Issue 10% Bonds (at face)$2,000,000Issue $10 Common Stock$3,000,000$1,000,000Income tax is estimated at 40% of income.Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $750,000.Example Exercise 14-1Alternative Financing Plans114-1011-1114-11Example Exercise 14-1 (continued)1Earnings before bond interest and income taxBond interestBalanceIncome tax Net incomeDividend on preferred stockEarnings available for common stockNumber of common sharesEarnings per share on common stock$750,000200,000$550,000220,000$330,000$330,000100,000Plan 2(2,000,000 10%) ($550,000 40%)$750,000$750,000300,000$450,000$450,000300,000Plan1$ 1.50($750,000 40%)$ 3.3014-11For Practice: PE 14-1A, PE 14-1BFollow My Example 14-111-1214-12Describe the characteristics and terminology of bonds payable.214-1211-1314-13Bond Characteristics and TerminologyThe underlying contract between the company issuing bonds and the bondholders is called a bond indentureor trust indenture....
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WRD_ch14 - 11-114-1Long-Term Liabilities: Bonds and...

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