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1、,Accounting and Reporting of Long-Term Liabilities,Chapter 14,Intermediate Accounting 12th Edition Kieso, Weygandt, and Warfield,Prepared by Coby Harmon, University of California, Santa Barbara,Current Liabilities and Contingencies,Bonds Payable,Long-Term Notes Payable,Reporting and Analysis of Long
2、-Term Debt,Issuing bonds Types and ratings Valuation Effective-interest method Costs of issuing Treasury bonds Extinguishment,Notes issued at face value Notes not issued at face value Special situations Mortgage notes payable,Off-balance-sheet financing Presentation and analysis,Bonds Payable,Long-t
3、erm 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.,LO 1 Describe the formal procedures associated with issuing long-term debt.,Examples: Bonds payable Not
4、es payable Mortgages payable,Pension liabilities Lease liabilities,Long-term debt has various covenants or restrictions.,Issuing Bonds,LO 1 Describe the formal procedures associated with issuing long-term debt.,Bond contract known as a bond indenture. Represents a promise to pay: sum of money at des
5、ignated maturity date, plus 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. Purpose is to borrow when the amount of capital needed is too large for one lender to supply.,Types of
6、 Bonds,LO 2 Identify various types of bond issues.,Common types found in practice: Secured and Unsecured (debenture) bonds, Term, Serial, and Callable bonds, Convertible bonds, Commodity-backed bonds, Deep-discount bonds (Zero-interest debenture bonds), Registered bonds and bearer or coupon bonds, I
7、ncome and Revenue bonds.,Valuation of Bonds Discount and Premium,LO 3 Describe the accounting valuation for bonds at date of issuance.,Between the time the company sets the terms and the time it issues the bonds, the market conditions and the financial position of the issuing corporation may change
8、significantly. Such changes affect the marketability of the bonds and thus their selling price.,The investment community values a bond at the present value of its expected future cash flows, which consist of (1) interest and (2) principal.,Interest Rates Stated, coupon, or nominal rate = The interes
9、t rate written in the terms of the bond indenture. Market rate or effective yield = rate that provides an acceptable return on an investment commensurate with the issuers risk characteristics. Rate of interest actually earned by the bondholders.,Valuation of Bonds Discount and Premium,LO 3 Describe
10、the accounting valuation for bonds at date of issuance.,How do you calculate the amount of interest that is actually paid to the bondholder each period?(Stated rate x Face Value of the bond)How do you calculate the amount of interest that is actually recorded as interest expense by the issuer of the
11、 bonds?(Market rate x Carrying Value of the bond),Valuation of Bonds Discount and Premium,LO 3 Describe the accounting valuation for bonds at date of issuance.,1- Depends on Market Rate of interest 2- Computation of selling price:- PV of maturity value, plus- PV of interest payments, at what rate?-
12、Market rate of interest 3- Semi-annual interest paying bonds:- Require doubling the periods- Halving the interest rate,Valuation of Bonds Discount and Premium,LO 3 Describe the accounting valuation for bonds at date of issuance.,Calculating the Selling Price of a Bond,Bonds Sold At,Market Interest,6
13、%,8%,10%,Premium,Face Value,Discount,Valuation of Bonds Discount and Premium,LO 3 Describe the accounting valuation for bonds at date of issuance.,Assume Stated Rate of 8%,Illustration Three year bonds are issued at face value of $100,000 on Jan. 1, 2007, with a stated interest rate of 8%. Interest
14、paid annually on Dec. 31. Calculate the issue price of the bonds, market interest rate of 8%.,LO 3 Describe the accounting valuation for bonds at date of issuance.,Market Rate 8% (PV for 3 periods at 8%),Bonds Issued at Par,Illustration Three year bonds are issued at face value of $100,000 on Jan. 1
15、, 2007, a stated interest rate of 8%, and market rate of 8%.,Bonds Issued at Par,LO 3 Describe the accounting valuation for bonds at date of issuance.,Illustration Stated rate = 8%. Market rate = 8%.,Bonds Issued at Par,LO 3 Describe the accounting valuation for bonds at date of issuance.,Journal en
16、tries for 2007: 1/1/07 Cash 100,000Bonds payable 100,000 12/31/07 Interest expense 8,000 Cash 8,000,Illustration Three year bonds are issued at face value of $100,000 on Jan. 1, 2007, and a stated interest rate of 8%. Calculate the issue price of the bonds assuming a market interest rate of 10%.,Bonds Issued at a Discount,LO 4 Apply the methods of bond discount and premium amortization.,Market Rate 10% (PV for 3 periods at 10%),Illustration Three year bonds are issued at face value of $100,000 on Jan. 1, 2007, a stated interest rate of 8%, and market rate of 10%.,
