14-Long term - Chapter 14 Chapter 14 Long-Term Financial...

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Unformatted text preview: Chapter 14 Chapter 14 Long-Term Financial Liabilities Long-Term Financial Liabilities Note: Financial calculator required Only TI BA II Plus supported in class 2 Long-Term Financial Liabilities Long-Term Financial Liabilities Nature of Long- Nature of Long- Term Debt Term Debt Bonds Notes payable Types of bonds/notes Bond ratings Derecognition Derecognition of Debt of Debt Repayment before maturity date Exchange of debt instruments Troubled debt restructuring Defeasance Measurement and Measurement and Valuation Valuation Bonds and notes issued at par Discounts and premiums Special situations Recognition Recognition and and Presentation Presentation Issues Issues Off-balance sheet financing Presentation of long-term debt Note disclosures IFRS / Private IFRS / Private Entity GAAP Entity GAAP Comparison Comparison Analysis Comparison of IFRS and private entity GAAP Looking ahead 3 Issuing Long-Term Debt Issuing Long-Term Debt Obligations not payable within one year, or one business operating cyclewhichever is longer Examples include: Bonds payable Long-term notes Mortgages Pension liabilities Lease liabilities Often with restrictive covenants (terms) attached 4 Bonds Bonds Most common type of long-term debt A bond issue may be sold: either through an investment banker, or by private placement A bond indenture is a promise (by the lender to the borrower) to pay: a sum of money at the designated date, and periodic interest (usually paid semi-annually) at a stipulated rate on the face value 5 Notes Payable Notes Payable Similar in nature to bonds Require repayment of principal at a future date Require periodic interest payments The difference is that notes do not normally trade on public markets Accounting for bonds and notes is the same in many respects Like a bond, a note is recorded at the PV of future interest and principal, and any premium/discount is amortized over the life of the note 6 Types of Bonds/Notes Types of Bonds/Notes Bearer (coupon) bonds : are freely transferable by current owner Secured and unsecured debt : secured by collateral (real estate, stocks) Serial bonds : mature in installments Callable bonds : give issuer right to call and retire debt prior to maturity Income and revenue bonds : interest payments tied to some form of performance Deep-discount bonds : little or no interest payments; sold at substantial discount Convertible bonds : can be converted into other corporate securities for a specified time after issue 7 Bond Ratings Bond Ratings Companies such as Moodys Investors Service and Standard & Poors Corporation assess credit ratings of company bonds and preferred shares Bonds ratings range from a quality of Prime to Very speculative AAA rating indicates a rating of Prime, while a B rating indicates a very speculative rating 8...
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This note was uploaded on 10/26/2011 for the course ACCT 3410 taught by Professor Jobs during the Spring '11 term at Kwantlen Polytechnic University.

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14-Long term - Chapter 14 Chapter 14 Long-Term Financial...

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