Warren_23e__AISE_IM_Ch14 - chapter 14 Long-Term...

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chapter 14 Long-Term Liabilities: Bonds and Notes ______________________________________________ OPENING COMMENTS The subject of long-term liabilities and bonds are a challenge for most students. This chapter requires students to apply difficult concepts that most of them have not encountered before—for example, present value and amortization of bond discounts and premiums both covered in the appendices to the chapter. The majority of the material in this chapter was previously in Chapter 15 of earlier versions of the text. The bulk of this chapter has been simplified from past editions of the textbook. The chapter begins with a discussion of financing corporations and comparison of the option of issuing stock and issuing bonds. This edition adds the option of financing through installment notes. Before attacking bond problems that require the use of present-value tables, take the time to explain this new concept thoroughly and to demonstrate several applications of present-value techniques. This will make present value meaningful and will ease its application to bonds. After studying the chapter, your students should be able to: 1. Compute the potential impact of long-term borrowing on earnings per share. 2. Describe the characteristics and terminology of bonds payable. 3. Journalize entries for bonds payable. 4. Describe and illustrate the accounting for installment notes. 5. Describe and illustrate the reporting of long-term liabilities including bonds and notes payable. 227 This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.
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228 Chapter 14 Long-Term Liabilities: Bonds and Notes This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher. STUDENT FAQS Why do we need to study bonds when 99.9 percent of us will never be dealing with bonds because we are not accounting majors? Is the current interest rate on bonds going up or down now? Why would a company want to call bonds in and incur a loss? Which interest rate do we use when we go to the tables? What interest rate must always be used to pay interest? Why would a company issue bonds when it could just sell more stock to raise money? What advantage do bonds have over long-term notes? Why aren’t all bonds issued at par or stated valued? Wouldn’t that be a lot easier? Isn’t using two different interest rates manipulative? Why is the gain or loss on early extinguishment of debt an extraordinary item? How can a bonds issued by a company be a long-term debt but to the buyer of the bonds it could be a
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This note was uploaded on 09/25/2010 for the course FEUI ACCT01 taught by Professor Prof.steve during the Spring '10 term at Indonesian Computer University.

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Warren_23e__AISE_IM_Ch14 - chapter 14 Long-Term...

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