CH14_L-term_Bonds

CH14_L-term_Bonds - Chapter 14: Long-term liabilities...

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Unformatted text preview: Chapter 14: Long-term liabilities Learning Objectives: 1. Describe the formal procedures associated with issuing long-term debt. 2. Identify various types of bond issues. 3. Describe the accounting valuation for bonds at date of issuance. 4. Apply the methods of bond discount and premium amortization. 5. Describe the accounting for the extinguishment of debt. 6. Explain the accounting for long-term notes payable. 7. Explain the reporting of off-balance-sheet financing arrangements. 8. Indicate how to present and analyze long-term debt. 11 Bonds Payable Long-Term Notes Payable Reporting and Analyzing Long-Term Debt Issuing bonds Types and ratings Valuation Effective-interest method Costs of issuing Extinguishment Notes issued at face value Notes not issued at face value Special situations Mortgage notes payable Off-balance-sheet financing Presentation and analysis Long-Term Liabilities Long-term debt consists of probable future sacrifices of economic benefits arising from present obligations that are not payable within a year or the operating cycle of the company, whichever is longer. Examples: Bonds payable Notes payable Mortgages payable Pension liabilities Lease liabilities Long-term debt has various covenants or restrictions . Long-term debt Bond contract known as a bond indenture . Represents a promise to pay: (1) sum of money at designated maturity date + (2) periodic interest at a specified rate on the maturity amount (face value). Interest payments usually made semiannually. Paper certificate, typically a $1,000 or a $5,000 face value. Price of bonds stated at 100s. Bonds Payable The Process of Bond Issuance { C 4 7 1 D C 0 C -2 1 D -4 2 E B -8 C 0 F -E 6 3 1 B E D 1 5 7 5 8 } 1. Receive the approval from the stockholders and regulatory authorities. { 4 F 1 9 A 8 0 B -D 6 C A -4 6 7 4 -B D D 1 -2 A 7 8 1 6 3 C 6 2 } 3. Make a public announcement of its intent to sell { 2 E 4 9 6 C 1 -4 D E F -4 A 6 D -A 1 D C -6 9 4 E 7 9 A 9 F 0 C F } 4. Negotiate the appropriate selling price with the underwriters. { 6 A 7 0 7 F 8-B 1 B A -4 5 3 6 -9 0 7 E -3 D C 9 A 7 A 2 3 4 5 3 } the effective interest rate (yield) and the selling price. { F 8 7 E B 3 8 7 -3 4 C-4 7 6 8 -B 1 9 A -E 7 9 E 4 6 2 1 D 9 A 1 } 2. Print bond certificates and write indenture. { D 5 4 B 2 8 D -F 4 0 2 -4 9 6 -9 0 E -D 2 3 8 B F A C E F 1 4 } he underwriter will either purchase the bonds from the issuing company and resell them to Types of Bonds: On the basis of { 3 2 D 6 2 D 5 E -8 D 3 6 -4 4 D -9 1 E 9 -C 7 3 6 D A B C D A E 1 } her the bonds are secured: { C 9 6 E D 9 D 7 -8 F 9 C -4 2 7 0 -9 B D 9 -7 0 F 4 C 9 5 7 A 7 6 4 } Secured bonds { 9 C 4 F C F E 8 -4 3 D 5 -4 A 6 D -A 2 3 A -1 F 7 D 9 B A 7 4 B C } Unsecured (Debenture) Bonds { 9 5 B 1 A 4 5 B -D 2 C-4 1 4 D -A 6 2 A -1 2 D B 2 E 4 E 2 5 } how the interests are paid: stered bonds { D 2 0 F 5 6 -A 1 3 2 -4 E A 3 -A 5 3 9 -0 9 E B 5 8 6 3 A 5 2 D } Coupon ( bearer) bonds { 1 B E 3 8 1 F 8 -5 1 9 E -4 F 2 6 -8 E 3 4 -8 E 7...
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This note was uploaded on 09/29/2011 for the course ACCT 302 taught by Professor Staff during the Spring '11 term at S.F. State.

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CH14_L-term_Bonds - Chapter 14: Long-term liabilities...

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