15-PresentationDeck - ACC 212: PRINCIPLES OF ACCOUNTING...

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Unformatted text preview: ACC 212: PRINCIPLES OF ACCOUNTING CHAPTER 15: LONG-TERM LIABILITIES PRESENTATION DECK Prepared by: Jill Mitchell, Assistant Professor, NOVA Reference: Weygandt, Jerry, Kieso, and Kimmel. Accounting Principles . 9th edition. USA: John Wiley & Sons, Inc., 2009. Unless noted, illustrations are from the referenced text. Chapter 15-2 2.1 Prepare the JEs for the issuance of bonds at par, discount and premium 2.2 Be able to record JEs for interest expense associated with bonds 2.3 Apply the effective interest method for amortization of bond discount and bond premium. 1. Bonds Basics 2. Accounting for Bond Issues 1.1 Explain why bonds are issued 15: Long-Term Liabilities Course Competencies 3. Time Value of Money Concepts 3.1 Understand and apply basic present value of money concepts. Chapter 15-3 Long-term liabilities Corporations usually require long-term financing at some point during their lives. This financing may be used to purchase new equipment, expand the business, or acquire other companies. There are two forms of long-term financing: 1. Equity financing obtaining money from owners through the issuance of stock 2. Debt financing borrowing money from lenders One form of debt financing made through the issuance of bonds; typically issued when the amount of financing needed exceeds what one lender can provide. 1.1 Explain why bonds are issued. Chapter 15-4 Bonds are a form of interest-bearing notes payable. They are issued by corporations and governmental agencies. From a companys perspective, the bond is a long-term liability. From a bondholders perspective, the bond is an investment. After a company issues the bonds, they can be traded on established exchanges such as the New York Bond exchange. Bond Basics 1.1 Explain why bonds are issued. Occasionally, governments and corporations need to borrow more money than a single lender can provide. Many issue bonds which are financial instruments that outline the future payments a promises to make in exchange for receiving a sum of money now. Chapter 15-5 Bonds Basics Bonds vs. Stock Advantages over common stock: 1. Stockholder control is not affected. 2. Tax savings result (bond interest is deductible for tax purposes) 3. Earnings per share may be higher. 4. Bonds are sold in small denominations ($1000) and as a result may attract many investors. 1.1 Explain why bonds are issued. Disadvantage : companies must pay interest on a periodic basis and must repay principal at the due date. Chapter 15-6 Effects on earnings per sharestocks vs. bonds. Illustration 15-2 1.1 Explain why bonds are issued. Bonds Basics Bonds vs. Stock EPS = _____NI Dividends on P/S________ Weighted Avg. Outstanding Shares Chapter 15-7 The major disadvantages resulting from the use of bonds are: a. that interest is not tax deductible and the principal must be repaid....
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15-PresentationDeck - ACC 212: PRINCIPLES OF ACCOUNTING...

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