ch14 - 14-11.Accounting for LT debt and bonds.2.Apply the...

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Unformatted text preview: 14-11.Accounting for LT debt and bonds.2.Apply the methods of bond discount and premium amortization.3.Accounting for the extinguishment of LT debt liabilities.4.Fair value option.5.Off-balance-sheet financing arrangements.6.Presentation and analysis of long-term debt.Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives14-2Bonds PayableBonds PayableBonds PayableBonds PayableLong-term debtconsist of probable future sacrifices of economic benefits arising from present obligations that are not payable within a yearor the operating cycleof the company, whichever is longer. Examples:►Bonds payable►Long-term notes payable►Mortgages payable►Pension liabilities ►Lease liabilitiesLong-term debt often has variouscovenantsor restrictions.14-3Issuing BondsIssuing BondsIssuing BondsIssuing BondsLO 1 Describe the formal procedures associated with issuing long-term debt.Bond contract known as a bond indenture.Represents a promise to pay: (1)sum of money at designated maturity date, plus(2)periodic interest at a specified rate on the maturity amount (face value).Paper certificate, typically a $1,000 face value. Interest payments usually made semiannually. Used when the amount of capital needed is too large for one lender to supply.14-4Types and Ratings of BondsTypes and Ratings of BondsTypes and Ratings of BondsTypes and Ratings of BondsLO 2 Identify various types of bond issues.Common typesfound in practice:Secured and Unsecured (debenture) bonds.Term, Serial, and Callable bonds.Convertible, Commodity-Backed, Deep-Discount bonds.Registered and Bearer (Coupon) bonds.Income and Revenue bonds.14-5Types and Ratings of BondsTypes and Ratings of BondsTypes and Ratings of BondsTypes and Ratings of BondsLO 2 Identify various types of bond issues.Corporate bond listing.Company NameInterest rate paid as a % of par valuePrice as a % of parInterest rate based on price14-6Valuation of Bonds PayableValuation of Bonds PayableValuation of Bonds PayableValuation of Bonds PayableLO 3 Describe the accounting valuation for bonds at date of issuance.Issuance and marketing of bondsto the public:Usually takes weeks or months. Issuing company must►Arrange for underwriters. ►Obtain SEC approval of the bond issue, undergo audits, and issue a prospectus.►Have bond certificates printed. 14-7Valuation of Bonds PayableValuation of Bonds PayableValuation of Bonds PayableValuation of Bonds PayableLO 3 Describe the accounting valuation for bonds at date of issuance.Selling price of a bond issueis set by the supply and demand of buyers and sellers relative risk market conditionsstate of the economyInvestment communityvalues a bond at the present valueof its expected future cash flows, which consist of (1) interestand (2) principal.14-8Interest RateStated, coupon, or nominal rate= Rate written in the terms of the bond indenture....
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ch14 - 14-11.Accounting for LT debt and bonds.2.Apply the...

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