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1、Learning ObjectivesPower Notes1. Financing Corporations2. Characteristics of Bonds Payable3. The Present-Value Concept and Bonds Payable4. Accounting for Bonds Payable5. Bond Sinking Funds6. Bond Redemption7. Investments in Bonds8. Corporation Balance Sheet9. Financial Analysis and InterpretationCha
2、pter F13C13 Bonds Payable and Investments in Bonds Bonds Payable and Investments in Bonds Long-Term Financing Characteristics of Bonds Payable Time Value of Money Issuing Bonds Payable Redemption of Bonds Payable Investments in Bonds Number of Times Interest EarnedSlide # Power Note Topics3917283435
3、36 Note: To select a topic, type the slide # and press Enter.Power NotesChapter F13 Bonds Payable and Investments in Bonds Bonds Payable and Investments in Bonds Two Methods of Long-Term FinancingTwo Methods of Long-Term Financing Resources = Sources StockholdersEquityAssetsLiabilitiesTwo Methods of
4、 Long-Term FinancingTwo Methods of Long-Term Financing Resources = Sources StockholdersEquityAssetsLiabilities Equity Financing Stockholders Two Methods of Long-Term FinancingTwo Methods of Long-Term Financing Resources = Sources StockholdersEquityAssetsLiabilitiesBondholders Equity Financing Stockh
5、olders Debt Financing Bondholders Two Methods of FinancingTwo Methods of FinancingBondholdersBonds (debt)Bonds (debt) Interest payments to bondholders are an expense that reduces taxable income.Stock (equity)Stock (equity) Dividend payments are made from after tax net income and retained earnings. E
6、arnings per share on common stock can often be increased by issuing bonds rather than additional stock. Why issue bonds rather than stock? Why issue bonds rather than stock?StockholdersAlternative Financing Plans $800,000 EarningsAlternative Financing Plans $800,000 EarningsPlan 1Plan 2Plan 312 % bo
7、nds $2,000,000Preferred 9% stock, $50 par $2,000,0001,000,000Common stock, $10 par$4,000,0002,000,0001,000,000Total$4,000,000 $4,000,000 $4,000,000Earnings before interest and income tax$ 800,000$ 800,000$ 800,000Deduct interest on bonds240,000Income before income tax$ 800,000$ 800,000$ 560,000Deduc
8、t income tax320,000320,000224,000Net income$ 480,000$ 480,000$ 336,000Dividends on preferred stock180,00090,000Available for dividends$ 480,000$ 300,000$ 246,000Shares of common stock 400,000 200,000 100,000Earnings per share$ 1.20$ 1.50$ 2.46Alternative Financing Plans $440,000 EarningsAlternative
9、Financing Plans $440,000 EarningsPlan 1Plan 2Plan 312 % bonds $2,000,000Preferred 9% stock, $50 par $2,000,0001,000,000Common stock, $10 par$4,000,0002,000,0001,000,000Total$4,000,000 $4,000,000 $4,000,000Earnings before interest and income tax$ 440,000$ 440,000$ 440,000Deduct interest on bonds240,0
10、00Income before income tax$ 440,000$ 440,000$ 200,000Deduct income tax176,000176,00080,000Net income$ 264,000$ 264,000$ 120,000Dividends on preferred stock180,00090,000Available for dividends$ 264,000$ 84,000$ 30,000Shares of common stock 400,000 200,000 100,000Earnings per share$ 0.66$ 0.42$ 0.30Ch
11、aracteristics of Bonds PayableCharacteristics of Bonds Payable4Long-term debt repayable 10, 20, or 30 years after date of issuance.4Issued in face (principal) amounts of $1,000, or multiples of $1,000.4Contract interest rate is fixed for term (life) of the bond.4Face amount of bond repayable at matu
12、rity date.Bond Variables and ConstantsBond Variables and Constants1. ConstantsConstants fixed by bond contract.a. Principal (face) amount.b. Contract rate of interest.c. Term (life) of the bond.2. VariablesVariables determined in the bond market.a. Market price of the bond.b. Market (effective) inte
13、rest rate.How are Bond Prices DeterminedHow are Bond Prices Determined1. Present Value of Face AmountThe present value of the face amount (constant) of the bond at its maturity date, based on the current market interest rate (variable).2. Present Value of Interest PaymentsThe present value of the pe
14、riodic interest payments (constant) for the term of the bonds, based on the current market interest rate (variable).The selling price of bonds are based on two amounts.Market and Contract Interest RatesMarket and Contract Interest RatesDifferences in market and bond contract interest rates result in
15、 Discounts and Premiums.WhenBonds sell atMarket rate = Contract rateMarket rate Contract rateMarket rate Contract rateFace value Discount PremiumCash Flow of Bonds PayableCash Flow of Bonds PayableCash Outflows:Interest payments$ 60,000=$ 43,133 (10 periods at $6,000)Face amount100,000=53,273 (at en
16、d of 5 years)$160,000=$96,403Cash Inflows:Selling proceeds$ 96,406=$96,406Present ValuesOn January 1, $100,000 of 12%, five-year bonds, with interest of $6,000 payable semiannually are issued. Market rate is 13% at date of issue.Cash Flow of Bonds PayableCash Flow of Bonds PayableCash Outflows:Inter
17、est payments$ 60,000=$ 43,133 (10 periods at $6,000)Face amount100,000=43,133 (at end of 5 years)$160,000=$96,403Cash Inflows:Selling proceeds$ 96,403=$96,403Present ValuesOn January 1, $100,000 of 12%, five-year bonds, with interest of $6,000 payable semiannually are issued. Market rate is 13% at d
18、ate of issue.Present value of an annuity of $6,000 for 10 periods at a market rate of 6.5% per period is $43,133.Payment x Factor = Present Value $6,000 x 7.1888 = $43,133 Cash Flow of Bonds PayableCash Flow of Bonds PayableCash Outflows:Interest payments$ 60,000=$ 43,133 (10 periods at $6,000)Face
19、amount100,000=53,273 (at end of 5 years)$160,000=$96,403Cash Inflows:Selling proceeds$ 96,403=$96,403Present ValuesOn January 1, $100,000 of 12%, five-year bonds, with interest of $6,000 payable semiannually are issued. Market rate is 13% at date of issue.Present value of $100,000 paid at the end of
20、 10 six-month periods at a market rate of 6.5% per period is $53,273.Payment x Factor = Present Value$100,000 x .53273 = $53,273Cash Flow of Bonds PayableCash Flow of Bonds PayablePresent ValuesOn January 1, $100,000 of 12%, five-year bonds, with interest of $6,000 payable semiannually are issued. M
21、arket rate is 13% at date of issue.Cash Outflows:Interest payments$ 60,000=$ 43,133 (10 periods at $6,000)Face amount100,000=53,273 (at end of 5 years)$160,000$160,000=$96,406Cash Inflows:Selling price $96,406$96,406The Time Value of Money Future ValueThe Time Value of Money Future ValueThe time val
22、ue of money concept is used in many business decisions. This concept is an important consideration in accounting for bonds payable.PresentValueFutureValue$1,000$ ?What is the What is the future valuefuture value of $1,000 invested of $1,000 invested today (present value) at 8% per year?today (presen
23、t value) at 8% per year?The Time Value of Money Future ValueThe Time Value of Money Future ValueThe time value of money concept is used in many business decisions. This concept is an important consideration in accounting for bonds payable.PresentValueFutureValue$1,000= $1,000 + ($1,000 x 8%)= $1,000
24、 x 108% or 1.08What is the What is the future valuefuture value of $1,000 invested of $1,000 invested today (present value) at 8% per year?today (present value) at 8% per year?$1,080The Time Value of Money Present ValueThe Time Value of Money Present ValueThe time value of money concept is used in m
25、any business decisions. This concept is an important consideration in accounting for bonds payable.PresentValueFutureValue$ ?What is the What is the present valuepresent value of $1,000 to be of $1,000 to be received one year from today at 8% per year? received one year from today at 8% per year? $1
26、,000The Time Value of Money Present ValueThe Time Value of Money Present ValueThe time value of money concept is used in many business decisions. This concept is an important consideration in accounting for bonds payable.PresentValueFutureValue$ 925.93= $1,000 / 108% or 1.08What is the What is the p
27、resent valuepresent value of $1,000 to be of $1,000 to be received one year from today at 8% per year? received one year from today at 8% per year? $1,000Calculating Present ValuesCalculating Present ValuesPresent values can be determined using present value tables, mathematical formulas, calculator
28、s or computers. Present value of $1 with Compound Interest1.9434= $1.0000 / 1.06CalculatorPV TablePeriod 6%One dollar at the end of one period at 6% per period is equal to $.9434 today (present value).Calculating Present ValuesCalculating Present ValuesPresent values can be determined using present
29、value tables, mathematical formulas, calculators or computers. Present value of $1 with Compound InterestPV TablePeriod 6%One dollar at the end of two periods at 6% per period is equal to $.8900 today (present value).To use the value from the prior period as the starting point, dont clear your calcu
30、lator.1.9434.9434= $1.0000 / 1.062.8900=$ $ .9434.9434/ 1.06CalculatorCalculating Present ValuesCalculating Present ValuesPresent values can be determined using present value tables, mathematical formulas, calculators, or computers. Present value of $1 with Compound InterestPV TablePeriod 6%One doll
31、ar at the end of three periods at 6% per period is equal to $.8396 today (present value).1.9434= $1.0000 / 1.062.8900.8900=$ .9434/ 1.063.8396= $ .8900$ .8900/ 1.06CalculatorCalculating Present ValuesCalculating Present ValuesPresent values can be determined using present value tables, mathematical
32、formulas, calculators or computers. Present value of $1 with Compound Interest1.9434= $1.0000 / 1.062.8900=$ .9434/ 1.063.8396= $ .8900/ 1.064.7921= $ .8396/ 1.065.7432= $ .7921/ 1.066.7050= $ .7432/ 1.06PV TablePeriod 6%When using a calculator, learn to use constant division. You will then enter $1
33、 and 1.06 the first time, pressing only the equal (=) key for each successive answer.CalculatorCalculating Present Values of AnnuitiesCalculating Present Values of AnnuitiesPresent value of $1 Annuity of $1PV TableAnnuity Period 6% 6%CalculationSum of Periods1.9434.9434.9434= Period 12.8900.89001.83
34、34= Periods 123.83962.6730 = Periods 134.79213.4651 = Periods 145.74324.2124 = Periods 154.2124The PV of an annuity of $1 to be received each year for two years is $1.8334. This is the sum of the PV of the two amounts for periods 1 and 2.Annuities represent a series of equal amounts to be paid or re
35、ceived in the future over equal periods.Calculating Present Values of AnnuitiesCalculating Present Values of AnnuitiesPresent value of $1 Annuity of 1$PV TableAnnuity Period 6% 6%CalculationSum of Periods1.9434.9434.9434= Period 12.8900.89001.8334= Periods 123.8396.83962.6730 = Periods 134.79213.465
36、1 = Periods 145.74324.2124 = Periods 154.2124The PV of an annuity of $1 to be received each year for three years is $2.6730. This is the sum of the PV of the three amounts for periods 13.Annuities represent a series of equal amounts to be paid or received in the future over equal periods.Calculating
37、 Present Values of AnnuitiesCalculating Present Values of AnnuitiesAnnuities represent a series of equal amounts to be paid or received in the future over equal periods.Present value of $1 Annuity of 1$PV TableAnnuity Period 6% 6%CalculationSum of Periods1.9434.9434= Period 12.89001.8334= Periods 12
38、3.83962.6730 = Periods 134.79213.4651 = Periods 145.74734.2124 = Periods 154.2124TotalCash100,000Bonds Payable100,000 PV of face due in 5 years ($100,000 x 0.55840) = $55,840 PV of $1 for 10 periods at 6% PV of 10 interest payments ($6,000 x 7.36009) = 44,160 PV of annuity of $1 for 10 periods at 6%
39、Total selling price= $100,000 Date DateDescriptionDescriptionDebitDebitCreditCreditBonds Issued at Face AmountBonds Issued at Face AmountJan. 1Issued 12%, five-year bonds at face.On January 1, $100,000 of 12%, five-year bonds, with interest of $6,000 payable semiannually are issued. Market rate is 1
40、2% at date of issue. Date DateDescriptionDescriptionDebitDebitCreditCreditBonds Issued at a DiscountBonds Issued at a DiscountCash96,406Discount on Bonds Payable3,594Bonds Payable100,000 PV of face due in 5 years ($100,000 x 0.53273) = $53,273 (PV of $1 for 10 periods at 6.5%) PV of 10 interest paym
41、ents ($6,000 x 7.18883) =$43,133 (PV of annuity of $1 for 10 periods at 6.5%)Total selling price= $96,406Jan. 1Issued 12%, five-year bonds at a discount.On January 1, $100,000 of 12%, five-year bonds, with interest of $6,000 payable semiannually are issued. Market rate is 13% at date of issue. Date
42、DateDescriptionDescriptionDebitDebitCreditCreditAmortization of a Bond DiscountAmortization of a Bond DiscountInterest Expense6,359.70Discount on Bonds Payable359.70Cash6,000.00Jan. 1Issued 12%, five-year bonds at a discount.The straight-line method amortizes bond discount in equal periodic amounts.
43、 Cash96,406Discount on Bonds Payable3,594Bonds Payable100,000Payment of semiannual interest andamortization of 1/10 of bond discount.Jun. 30 Date DateDescriptionDescriptionDebitDebitCreditCreditBonds Issued at a PremiumBonds Issued at a PremiumCash103,769 Bonds Payable100,000Premium on Bonds Payable
44、3,769 PV of face due in 5 years ($100,000 x 0.58543) = $ 58,543 (PV of $1 for 10 periods at 5.5%) PV of 10 interest payments ($6,000 x 7.53763) =45,226 (PV of annuity of $1 for 10 periods at 5.5%)Total PV (selling price)= $103,769Jan. 1Issued 12%, five-year bonds at a premium.On January 1, $100,000
45、of 12%, five-year bonds, with interest of $6,000 payable semiannually are issued. Market rate is 11% at date of issue. Date DateDescriptionDescriptionDebitDebitCreditCreditAmortization of a Bond PremiumAmortization of a Bond PremiumInterest Expense5,623.10Premium on Bonds Payable376.90Cash6,000.00Ja
46、n. 1Issued 12%, five-year bonds at a premium.The straight-line method amortizes bond premium in equal periodic amounts. Cash103,769 Bonds Payable100,000Premium on Bonds Payable3,769Payment of semiannual interest andamortization of 1/10 of bond premium.Jun. 30 Date DateDescriptionDescriptionDebitDebi
47、tCreditCreditZero-Coupon BondsZero-Coupon BondsCash53,273Discount on Bonds Payable46,727Bonds Payable100,000 PV of face due in 5 years ($100,000 x 0.53273) = $53,273 (PV of $1 for 10 periods at 6.5%)An investment of $53,273 today would yield $100,000 in five years compounded semiannually at 6.5%. Ja
48、n. 1Issued $100,000 five-year zero-coupon bonds.Zero-coupon bonds do not provide for interest payments. Only the face amount is paid at maturity. Assume market rate is 13% at date of issue. Date DateDescriptionDescriptionDebitDebitCreditCreditBond RedemptionBond RedemptionBonds Payable25,000Premium
49、on Bonds Payable1,000Gain on Redemption of Bonds2,000Cash24,000Redeemed one-fourth of the total bonds. A corporation may call or redeem its bonds before they mature. Assume a bond issue of $100,000 and an unamortized premium of $4,000. Carrying value is $96,000 and one-fourth of the bonds are purcha
50、sed.Jun. 30 Date DateDescriptionDescriptionDebitDebitCreditCreditInvestments in BondsInvestments in BondsInvestment in Bonds1,025.30Interest Revenue10.20Cash1,035.50Investors do not usually record premium (or discount) in separate accounts because bonds are not often held until maturity.Purchased a
51、$1,000 bond at 102 plus a brokerage fee of $5.30 and accrued interest of $10.20Bonds are purchased directly from the issuing corporation or through an organized bond exchange. Bond prices are quoted as a percentage of the face amount. Apr. 2Solvency Measures The Long-Term CreditorSolvency Measures T
52、he Long-Term CreditorNumber of Times Interest Charges EarnedNumber of Times Interest Charges EarnedNumber of Times Interest Charges Earned20032002Income before income tax$ 900,000 $ 800,000Add interest expense 300,000 250,000Amount available for interest $1,200,000 $1,050,000 Solvency Measures The L
53、ong-Term CreditorSolvency Measures The Long-Term CreditorNumber of Times Interest Charges EarnedNumber of Times Interest Charges EarnedNumber of Times Interest Charges EarnedUse:Use:To assess the risk to debtholdersTo assess the risk to debtholders in terms in terms of number of times interest charg
54、es were of number of times interest charges were earned.earned.20032002Income before income tax$ 900,000 $ 800,000Add interest expense 300,000 250,000Amount available for interest $1,200,000 $1,050,000Number of times earnedNumber of times earned4.0 times4.0 times4.2 times4.2 times Note: To see the topic slide, type 2 and press Enter.This is the last slide in Chapter F13. Power NotesChapter F13 Bonds Payable and Investments in Bonds Bonds Payable and Investments in Bonds
