Bonds and Long-term Notes
|
|
- Philip Marshall
- 6 years ago
- Views:
Transcription
1 Section 11 Bonds & PV Tables (Noncurrent Liabilities) 14-1 Bonds and Long-term Notes The Nature of Long-Term Debt Liabilities signify creditors interest in a company s assets. note payable and note receivable: Borrow money from lenders; two sides of the same coin. bonds payable: Medium and large sized corp. often choose to issue bonds to borrow money.
2 14-2 Bonds Company Issuing Bonds At Bond Issuance Date Bond Selling Price Bond Certificate Investor Buying Bonds Company Issuing Bonds Subsequent Periods Interest Payments Face Value Payment at End of Bond Term Investor Buying Bonds
3 Classification of Bond Indenture: 14-3 The specific promises made to bondholders are described in a document called a bond indenture. 1. Debenture Bond, secured by the full faith and general credit of company. 3. Coupon Bond, pays interest when investor submits attached coupon. 2. Mortgage Bond, secured by lien on specific real estate owned by the issuer. 4. Callable Bond, allows company to buy back outstanding bonds prior to maturity. 5. Convertible Bond, allows bond holders to convert it to common stocks. 6. Guaranty Bond, guaranteed by a 3 rd party, such as the parent of the sub that issued the bonds.
4 14-4 Recording Bonds at Issuance On January 1, 2013, Masterwear Industries issued $700,000 of 12% bonds. Interest of $42,000 is payable semiannually on June 30 and December 31. The bonds mature in 3 years [an unrealistically short maturity to shorten the illustration]. The entire bond issue was sold in a private placement to United Intergroup, Inc., at face amount. At Issuance (January 1) Masterwear (Issuer) Cash 700,000 Bonds payable 700,000 United (Investor) Investment in bonds (face amount) 700,000 Cash 700,000
5 14-5 Determining the Selling Price Stated interest rate is: Below market rate Equal to market rate Above market rate The bonds sells: At a discount (Cash received is less than face amount) At face amount (Cash received is equal to face amount) At a premium (Cash received is greater than face amount)
6 Present Value Table $1,000 x = $3,170 Interest Received Factor Present Value PV of An Annuity Due At 10% = $10,000 x = $6,830 Principal Factor Present Value.90909x1.1=
7 14-7 Determining the Selling Price On January 1, 2013, Masterwear Industries issued $700,000 of 12% bonds, dated January 1. Interest is payable semiannually on June 30 and December 31. The bonds mature in three years. The market yield for bonds of similar risk and maturity is 14% (market rate). The entire bond issue was purchased by United Intergroup. Present value of an ordinary annuity of $1: n=6, i=7% present value of $1: n=6, i=7% Because interest is paid semiannually, the present value calculations use: (a) the semiannual stated rate (6%), (b) the semiannual market rate (7%), and (c) 6 (3 x 2) semi-annual periods.
8 Discount Amortization Schedule Here is a bond amortization schedule showing the cash interest, effective interest, discount amortization, and the carrying value (outstanding balance) of the bonds. Effective Increase in Outstanding Date Cash Interest Balance Balance 1/1/13 $ 666,633 6/30/13 $ 42,000 $ 46,664 $ 4, ,297 12/31/13 42,000 46,991 4, ,288 6/30/14 42,000 47,340 5, ,628 12/31/14 42,000 47,714 5, ,342 6/30/15 42,000 48,114 6, ,456 12/31/15 42,000 48,544 * 6, ,000 $ 252,000 $ 285,367 $ 33,367 *Rounded. B/S Bonds Payable 700,000 Less: Discount on B/P 33, ,633 $666,633 + $4,664 == $671,297 46,664 = 666,633 x
9 Bonds Issued at a Discount J.E. for Initial Issuer and Investor 14-9 Masterwear (Issuer) Cash 666,633 Discount on bonds payable 33,367 Bonds payable 700,000 United (Investor) Investment in bonds 700,000 Discount on bond investment 33,367 Cash 666,633 Alternative Net Method Masterwear (Issuer) Cash 666,633 Bonds payable 666,633 United (Investor) Investment in bonds 666,633 Cash 666,633
10 Determining Interest Effective Interest Method of Amortization Interest expense accrues on an outstanding debt at a constant % of the debt each period. Interest expense for each period is recorded as: effective interest rate (market) x the outstanding balance of the debt (BV at the end of interest period). Actual interest expense is recorded to the issuer and revenue to the investor. For the first six-month interest period the amount is calculated as follows: $666,633 (14% 2) = $46,664 Outstanding Balance Effective Rate Effective Interest Exp The bond indenture calls for semiannual interest payments of only $42,000 (i.e., the stated rate (6%) times the face value of $700,000). The difference ($4,664) increases the liability and is reflected as a reduction in the discount (a contra-liability account).
11 14-11 Recording Interest Expense At the First Interest Date (June 30) Masterwear (Issuer) Interest expense 46,664 Discount on bonds payable 4,664 Cash 42,000 United (Investor) Cash 42,000 Discount on bond investment 4,664 Investment revenue 46,664 $700,000 (12% 2) = $42,000 $666,633 (14% 2) = $46,664 $46,664 - $42,000 = $4,664
12 14-12 Zero-Coupon Bonds These bonds do not pay interest. Instead, they offer a return in the form of a deep discount from the face amount.
13 Bond Issued at Premium On January 1, 2013, Masterwear Industries issued $700,000 of 12% bonds, dated January 1. Interest is payable semiannually on June 30 and December 31. The bonds mature in three years. The market yield for bonds of similar risk and maturity is 10%. The entire bond issue was purchased by United Intergroup. Present value of an ordinary annuity of $1: n=6, i=5% Calculation of the Price of the Bonds Present Values Interest $ 42, = $ 213,179 Principal $700, = 522,354 Present value (price) of bonds $ 735,533 present value of $1: n=6, i=5% Because interest is paid semiannually, the present value calculations use: (a) the semiannual stated rate (6%), (b) the semiannual market rate (5%), and (c) 6 (3 x 2) semi-annual periods.
14 14-14 Premium Amortization Schedule Below is a bond amortization schedule showing the cash interest, effective interest, premium amortization, and the carrying value of the bonds. Effective Decrease in Outstanding Date Cash Interest Balance Balance 1/1/13 $ 735,533 6/30/13 $ 42,000 $ 36,777 $ 5, ,310 12/31/13 42,000 36,515 5, ,825 6/30/14 42,000 36,241 5, ,066 12/31/14 42,000 35,953 6, ,020 6/30/15 42,000 35,651 6, ,671 12/31/15 42,000 35,329 * 6, ,000 $ 252,000 $ 216,467 $ 35,533 *Rounded. 42,000 = 700,000 x 6% $735,533 5% = $36,777 $735,533 - $5,223 = $730,310
15 Journal Entries for Bonds Sold at a Premium Masterwear (Issuer) Cash 735,533 Premium on bonds payable 35,533 Bonds payable 700,000 United (Investor) Investment in bonds 700,000 Premium on bond investment 35,533 Cash 735,533 Interest expense and interest revenue will be recognized in a manner consistent with bonds issued at a discount. B/S Bonds Payable 700,000 Plus: Premium on B/P 35, ,533
16 Premium and Discount Amortization Compared 14-16
17 When Financial Statements Are Prepared Between Interest Dates On January 1, 2013, Masterwear Industries issued $700,000 of 12% bonds, dated January 1. Interest is payable semiannually on June 30 and December 31. The bonds mature in 3 years. The market yield for bonds of similar risk and maturity is 14%. The entire bond issue was purchased by United Intergroup at a cost of $666,633. (see slide 7) Assuming Issuer and Buyer both have October 31 st year-ends. Semi-annual Stated Interest (payment) June 30, 2013 Effective Interest (expense) $700,000 (12% 2) = $42,000 $666,633 (14% 2) = $46,664
18 When Financial Statements Are Prepared Between Interest Dates - Discount Year-end is on October 31, 2013, before the second interest date of December 31, so we must accrue interest for 4 months from June 30 to October 31. First year-end (10/31/13) accrual of interest expense and interest income: Masterwear (Issuer) Interest expense 31,327 Discount on bonds payable 3,327 Interest payable 28,000 United (Investor) Interest receivable 28,000 Discount on bond investment 3,327 Investment revenue 31, $42,000 4/6 = $28, $671,297 7% 4/6 = $31, $31,327 - $28,000 = $3,327 6/30/13 outstanding balance (slide 6, 7)
19 When Financial Statements Are Prepared Between Interest Dates - Discount /31/13, the next interest payment date, the following entries would be recorded. Masterwear (Issuer) Interest expense 15,664 Interest payable 28,000 Discount on bonds payable 1,664 Cash 42,000 (700k x.006) United (Investor) Cash (6 months) 42,000 Discount on bond investment (2 months) 1,664 Interest receivable (4 months) 28,000 Investment revenue (2 months) 15, ,297 7% 2/6 = $15, ,297 x 7% = 46,991 46,991 42,000 = 4,991 4,991 3,327 = 1, ,297 was 6/30/13 outstanding balance
20 The Straight-Line Method A Practical Expediency Using the straight-line method of amortizing discounts and premiums, the discount in the earlier illustration would be allocated equally to the 6 semiannual periods (3 years): $33,367 6 periods = $5,561 per period At Each of the Six Interest Dates Masterwear (Issuer) Interest expense 47,561 Discount on bonds payable 5,561 Cash 42,000 United (Investor) Cash 42,000 Discount on bond investment 5,561 Investment revenue 47,561
21 Debt Issue Costs Legal 2. Accounting 3. Underwriting 4. Commission 5. Engraving 6. Printing 7. Registration 8. Promotion Recoding: Record these deferred charges separately to an asset account; Amortized over the term of the related debt. (Dr. Debt Issue Costs; & amortize to Debt Issue Expense; see slide 31 for reporting on unamortized issue costs).
22 14-22 U. S. GAAP vs. IFRS Debt issue costs (called transaction costs under IFRS) are accounted for differently by U.S. GAAP and IFRS. Debt issue costs are recorded separately as an asset. Amortized over the term to maturity. Transaction costs reduce the recorded amount of the debt. The cost of these services reduces the net cash the issuing company receives and the amount recorded for the debt. Unless the recorded amount of the debt is reduced by the transaction costs, the higher effective interest rate is not reflected in a higher recorded interest expense.
23 14-23 Long-Term Notes Payable Accounting is Similar to Bonds A note is valued at the present value of its future interest and principal cash flows. Company amortizes any discount or premium over the life of the note.
24 14-24 Long-Term Notes Company (Borrower) Promissory Note (Note Payable) Bank Property, goods, or services.
25 14-25 Long-Term Notes Issued at Face Value On January 1, 2013, Skill Graphics, Inc., a product labeling and graphics firm, borrowed $700,000 cash from First BancCorp and issued a 3-year, $700,000 promissory note. Interest of $42,000 was payable semiannually on June 30 and December 31. January 1, At Issuance Skill Graphics (Borrower) Cash 700,000 Note payable 700,000 First BancCorp (Lender) Note receivable 700,000 Cash 700,000
26 14-26 Long-Term Notes At Each of the Six Interest Dates Skill Graphics (Borrower) Interest expense 42,000 Cash 42,000 First BancCorp (Lender) Cash 42,000 Interest revenue 42,000 At Maturity Skill Graphics (Borrower) Notes payable 700,000 Cash 700,000 First BancCorp (Lender) Cash 700,000 Notes receivable 700,000
27 Note Issued for Assets or Services Skill Graphics purchased a package labeling machine from Hughes Barker Corporation by issuing a 12%, $700,000, 3-year note that requires interest to be paid semiannually. The machine could have been purchased at a cash price of $666,633. The cash price implies an annual market rate of interest of 14%. That is, 7% is the semiannual discount rate (market rate) that yields a present value of $666,633 for the note s cash flows (interest plus principal) computed as follows: Present value of an ordinary annuity of $1: n=6, i=7% Present Values Interest $ 42, = $ 200,195 Principal $ = 466,438 Present value (price) of note $ 666,633 present value of $1: n=6, i=7% The accounting treatment: the amount is determined directly from the market value of the machine or indirectly as the present value of the note.
28 Note Exchanged for Assets or Services At the Purchase Date (January 1) Skill Graphics (Buyer/Issuer) Machinery 666,633 Discount on note payable 33,367 Notes payable 700,000 Hughes-Barker (Seller/Lender) Notes receivable 700,000 Discount on notes Receivable 33,367 Sales revenue 666,633 46,664 = 666,633 x.07 At the First Interest Date (June 30) Skill Graphics (Buyer/Issuer) Interest expense 46,664 Discount on note payable 4,664 Cash 42,000 Hughes-Barker (Seller/Lender) Cash 42,000 Discount on notes Receivable 4,664 Investment revenue 46,664
29 14-29 Installment Notes o To compute cash payment use present value tables. o Each payment includes both an interest amount and a principal amount. o Interest expense or revenue: Effective interest rate Outstanding balance of debt Interest expense or revenue o Principal reduction: Cash amount Interest component Principal reduction per period
30 Installment Notes Notes often are paid in installments (equal amounts each period; e.g., cars and houses), rather than a single amount at maturity. $666, = $139,857 amount of loan (slide 26) installment payment Decrease Outstanding Date Cash Effective Interest in Debt Balance (7% Outstanding Balance) 01/01/13 666,633 06/30/13 139, ,633 = 46,664 93, ,440 12/31/13 139, ,440 = 40,141 99, ,724 06/30/14 139, ,724 = 33, , ,028 12/31/14 139, ,028 = 25, , ,863 06/30/15 139, ,863 = 17, , ,706 12/31/15 139, ,706 = 9, , , , ,633 0 Rounded 14-30
31 14-31 Installment Notes At the Purchase Date (January 1) Skill Graphics (Buyer/Issuer) Machinery 666,633 Notes payable 666,633 Hughes-Barker (Seller/Lender) Notes receivable 666,633 Sales revenue 666,633 At the First Interest Date (June 30) Skill Graphics (Buyer/Issuer) Interest expense 46,664 Note payable (principal) 93,193 Cash 139,857 Hughes-Barker (Seller/Lender) Cash 139,857 Notes receivable 93,193 Interest revenue 46,664
32 Financial Statement Disclosures Matrix Inc. Partial Balance Sheet December 31, 2013 Long-term liabilities: Bonds payable, face amount $ 50,000,000 Less: unamortized discount (244,875) Less: unamortized issue costs (127,500) Bonds payable, net $ 49,627,625 Slide 20 Carrying value; it will be 50MM at Bonds Maturity. Disclosures include fair value, the nature of the company s liabilities, interest rates, maturity dates, call provisions, conversion options, restrictions imposed by creditors, any assets pledged as collateral, and the aggregate amounts payable for each of the next five years.
33 14-33 Early Extinguishment of Debt Debt retired at maturity results in no gains or losses. BUT Debt retired before maturity may result in an gain or loss on extinguishment. Cash Proceeds Book Value = Gain or Loss
34 Early Extinguishment of Debt Illustration On January 1, 2013, Masterwear Industries called its $700,000 (Face Value), 12% bonds when their carrying amount was $676,290. The indenture specified a call price of $685,000. The bonds were issued previously at a price to yield 14%. Masterwear (Issuer) Bonds payable 700,000 Loss on early extinguishment 8,710 Discount on bonds payable 23,710 Cash 685, $685, ,290 Call price - BV $700, ,290 FV - BV Note: When market rates Bonds value will because bonds are paying < the market rate; if co. elected to use Fair Value option, co will record (cr.) an unrealized holding gain - I/S (because owes less debt, so debit Bonds payable)
35 14-35 Convertible Bonds Some bonds may be converted into common stock at the option of the holder without additional cost to the holder. When bonds are converted the issuer (1) updates interest expense and (2) amortization of discount or premium to the date of conversion. The bonds are reduced and shares of common stock are increased.
36 Convertible Bonds - Example On January 1, 2013, HTL Manufacturers issued $100,000,000 (100,000 bonds) of 8% convertible debentures due 2033 at 103 (103% of face value). The bonds are convertible at the option of the holder into $1 par common stock at a conversion ratio of 40 shares per $1,000 bond. HTL recently issued nonconvertible, 20 year, 8% debentures at 98. At Issuance, January 1, 2013 HTL (Issuer) Cash 103,000,000 Convertible bonds payable 100,000,000 Premium on bonds payable 3,000,000 $100,000, % Note: Conversion value of $5MM (103MM 98MM) is not recorded; i.e., record the bond issuance the same way as for nonconvertible bonds.
37 Convertible Bonds Example Cont d Assume the bondholder exercises one-half of their option to convert the bonds into shares of stock when there is an unamortized premium of $2,000,000 associated with these bonds. The bonds are removed from the accounting records and the new shares issued are recorded at the same amount or the book value of the bonds At Date of Exercise of One-half of the Bonds HTL (Issuer) Convertible bonds payable 50,000,000 Premium on bonds payable 1,000,000 (amortized) Debt conversion expense (if any) xxx Common stock 2,000,000 Paid-in capital excess of par 49,000,000 (balanced) Cash (for conversion expense) xxx 50,000 bonds 40 shares $1 par = $2,000,000 par value Note: Callable Bonds: issuing co can call in and exchange for cash with a gain or Loss recognized, while Convertible rights are exercised by holders and exchange for stocks with no gains or losses recorded.
38 U.S. GAAP vs. IFRS Convertible Bonds Under IFRS, unlike U.S. GAAP, convertible debt is divided into its liability and equity elements. Cash (103% $100 million) 103 ($ in millions) Convertible bonds payable (value of the debt only) 98* Equity conversion option (difference) 5 *The discount is combined with the face amount of the bonds. This is the net method the preferred method under IFRS. Compound instruments such as this one are separated into their liability and equity components in accordance with IAS No. 32. If the bonds have a separate fair value of $98 million, we record that amount as the liability and the remaining $5 million as equity.
39 Bonds With Detachable Warrants Stock warrants allows a debt holder to purchase a specified number of shares of common stock at a specified option price per share within a stated period; like convertible debt Unlike convertible debt, warrants require the debt holder to pay some cash to receive the share. When warrants are detachable, a portion of the selling price of the bonds is allocated to the detachable stock warrants.
40 Bonds With Detachable Warrants - Example On January 1, 2013, HTL issued $100,000,000 of 8% bonds due in 2020 at 103 (103% of face value). Accompanying each $1,000 bond were 20 warrants. Each warrant permitted the holder to buy one share of $1 par common stock at $25 per share. Shortly after issuance, the warrants were listed on the stock exchange at $3 per warrant. HTL (Issuer) Cash 103,000,000 Discount on bonds payable 3,000,000 Bonds payable 100,000,000 Paid-in capital warrants 6,000, ,000 bonds 20 warrants $3 100,000 = 100,000,000 / 1,000 In essence, it is like bonds were issues at $3,000,000 premium, but also concurrently discounted at $6,000,000.
41 Bonds With Detachable Warrants -Example Cont d Assume one-half of the warrants (1,000,000) are exercised when the market value of HTL s common stock is $30 per share. The exercise price is $25 per common share. HTL (Issuer) Cash 25,000,000 Paid-in capital - warrants 3,000,000 Common stock 1,000,000 Additional paid-in capital 27,000,000 1,000,000 warrants $25 1,000,000 = 100,000 bonds x 10 warrants $6,000,000 2
42 14-42 Option to Report Liabilities at Fair Value Companies have the option to value some or all of their financial assets and liabilities at fair value. The same market forces that influence the fair value of an investment in debt securities (interest rates, economic conditions, risk, etc.) influence the fair value of liabilities.
43 14-43 U. S. GAAP vs. IFRS International accounting standards are more restrictive than U.S. standards for determining when firms are allowed to elect the fair value option. The fair value option may be elected by the firm. Although U.S. GAAP guidance indicates that the intent of the fair value option under U.S. GAAP is to address these sorts of circumstances, it does not require that those circumstances exist. Companies may only elect the fair value option when 1. When a group of financial assets or liabilities is managed and its performance is evaluated on a fair value basis, or 2. If the fair value option reduces accounting mismatch.
44 Bonds Issued Between Interest Dates Suppose a weak market caused a delay in selling the bonds until two months after the bond date of January 1(four months before semiannual interest was to be paid). In that case, the buyer would be asked to pay the seller accrued interest for two months in addition to the price of the bonds. Masterwear was unable to sell $700,000 face amount of bonds, dated January 1, and paying interest semiannually at an annual rate of 12%. The bonds were eventually sold on March 1. Let s calculate the accrued interest.
45 14-45 Bonds Issued Between Interest Dates The journal entry at the date of issuance (March 1) on the books of the issuer and investor are shown below:
46 14-46 Bonds Issued Between Interest Dates On June 30, the first interest payment date, the following journal entries will be made for the issuer and investor.
Reporting and Interpreting Bonds
Reporting and Interpreting Bonds CHAPTER 10 McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Not Barry and not James Slide 2 Understanding the Business The mixture of debt and equity used to finance
More informationStudent Learning Outcomes
Chapter 14: Bonds and Long-Term Notes Part 1 - Bonds Intermediate Accounting II Dr. Chula King Student Learning Outcomes Account for bonds at face value, at a discount, or at a premium using the effective
More information1. Classification of Debt and Measurement Issues
Chapter 12 Debt Financing 1. Classification and measurement issues associated with debt 2. Accounting for short-term debt 3. Accounting for long-term debt (mortgages) 4. Understand the various types of
More informationACCOUNTING - CLUTCH CH LONG TERM LIABILITIES.
!! www.clutchprep.com CONCEPT: INTRODUCTION TO BONDS AND BOND CHARACTERISTICS Bonds Payable are groups of debt securities issued to lenders Example: Company wants to raise $1,000,000. The company can sell
More informationBUS210. Accounting for Financing Decisions: Long-Term Liabilities
BUS210 Accounting for Financing Decisions: Long-Term Liabilities Liabilities Current or Short-term Liabilities Long-term Debt (borrowed funds) Lease Liabilities Deferred Taxes Contingencies and Commitments
More informationFAR. Financial Accounting & Reporting. Roger Philipp, CPA
FAR Financial Accounting & Reporting Roger Philipp, CPA FAR Financial Accounting and Reporting Written By: Roger Philipp, CPA Roger CPA Review 1288 Columbus Ave #278 San Francisco, CA 94133 www.rogercpareview.com
More informationPREVIEW OF CHAPTER 14-2
14-1 PREVIEW OF CHAPTER 14 14-2 Intermediate Accounting IFRS 2nd Edition Kieso, Weygandt, and Warfield 14 Non-Current Liabilities LEARNING OBJECTIVES After studying this chapter, you should be able to:
More informationChapter 11. Notes, Bonds, and Leases
1 Chapter 11 Long- Term Liabilities Notes, Bonds, and Leases 2 Long- Term Liabilities Many companies finance their operations and growth opportunities through the use of long term debt instruments: Notes
More informationChapter 15 Long-Term Liabilities
Chapter 15 Long-Term Liabilities CHAPTER OVERVIEW In Chapters 13 and 14 you learned about topics related to shareholders equity. Contributed capital is a major source of funds for corporations. However,
More informationAccounting for Long. Different Ways to Finance a Company. u Borrowing from a Bank (Ch 9): Notes Payable More expensive and restrictive than bonds.
Accounting for Long Term Liabilities Ch 10 Acc 1a Different Ways to Finance a Company u Borrowing from a Bank (Ch 9): Notes Payable More expensive and restrictive than bonds. u Selling Stock (Ch 11): Gives
More informationACCT 101 Bonds LECTURE NOTES CH. 10 Prof. Johnson
ACCT 101 Bonds LECTURE NOTES CH. 10 Prof. Johnson BASICS OF BONDS How corporations are financed Corporations raise cash from outside parties by: 1. Equity Financing. This involves issuing common or preferred
More informationACCT 652 Accounting. Payroll accounting. Payroll accounting Week 8 Liabilities and Present value
11-1 ACCT 652 Accounting Week 8 Liabilities and Present value Some slides Times Mirror Higher Education Division, Inc. Used by permission 2016, Michael D. Kinsman, Ph.D. 1 1 Payroll accounting I am sure
More informationBUS512M Session 9. Accounting for Financing Decisions: Long-Term Liabilities and Stockholders Equity
BUS512M Session 9 Accounting for Financing Decisions: Long-Term Liabilities and Stockholders Equity Liabilities Current or Short-term Liabilities Long-term Debt (borrowed funds) Lease Liabilities Deferred
More informationACCOUNTING FOR BONDS
ACCOUNTING FOR BONDS Key Terms and Concepts to Know Bonds are a medium to long-term financing alternative to issuing stock. Bonds are issued or sold face amount or par, at a discount if they pay less than
More informationLong-Term Liabilities C AT EDRÁTICO U PR R I O P I EDRAS S EG. S EM
Long-Term Liabilities E DWIN R ENÁN MALDONADO C AT EDRÁTICO U PR R I O P I EDRAS S EG. S EM. 2 017-18 Textbook: Financial Accounting, Spiceland This presentation contains information, in addition to the
More informationChapter Ten, Debt Financing: Bonds of Introduction to Financial Accounting online text, by Henry Dauderis and David Annand is available under
Chapter Ten, Debt Financing: Bonds of Introduction to Financial Accounting online text, by Henry Dauderis and David Annand is available under Creative Commons Attribution-NonCommercial- ShareAlike 4.0
More informationLong-Term Liabilities. Record and Report Long-Term Liabilities
SECTION Long-Term Liabilities VII OVERVIEW What this section does This section explains transactions, calculations, and financial statement presentation of long-term liabilities, primarily bonds and notes
More informationGleim CPA Test Prep: Financial (137 questions)
[1] Gleim #: 12.1.1 -- Source: CPA 1189 T-18 Bonds payable issued with scheduled maturities at various dates are called Serial Bonds Term Bonds No Yes No No Yes No Yes Yes [2] Gleim #: 12.1.2 -- Source:
More information4/10/2012. Liabilities and Interest. Learning Objectives (LO) LO 1 Current Liabilities. LO 1 Current Liabilities. LO 1 Current Liabilities
Learning Objectives (LO) Liabilities and Interest CHAPTER 9 After studying this chapter, you should be able to 1. Account for current liabilities 2. Measure and account for long-term liabilities 3. Account
More informationLiabilities. Chapter 10. Learning Objectives. After studying this chapter, you should be able to:
10-1 Chapter 10 Liabilities 10-2 Learning Objectives After studying this chapter, you should be able to: 1. Explain a current liability, and identify the major types of current liabilities. 2. Describe
More informationDefinition: present obligations based on past transactions or events that require either future payment or future performance of services
Liabilities Definition: present obligations based on past transactions or events that require either future payment or future performance of services A liability is a present obligation of the enterprise
More informationChapter 11: Liabilities, on and off balance sheet. General issues Long-term debt, contingent liabilities
Chapter 11: Liabilities, on and off balance sheet General issues Long-term debt, contingent liabilities 1 Liabilities, definition and classification present obligations based on past transactions or events
More informationLONG-TERM LIABILITIES
Chapter 14 LONG-TERM LIABILITIES PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA McGraw-Hill/Irwin Copyright
More informationB EXERCISES. Instructions Indicate how each of these items should be classified in the financial statements.
B EXERCISES 2 E1-1B (Classification of Liabilities) Presented below are various account balances of Royale Corp. (a) Bonds payable of $12,000,000 maturing January, 2017. (b) Unamortized discount on bonds
More informationLong-Term Liabilities and Investments
Ch 21 Long-Term Liabilities and Investments Understanding bonds Accounting for issuance of bond Retirement of a bond Bond sinking funds Accounting for investments in stocks and bonds Presentation of bonds
More informationProf Albrecht s Notes Accounting for Bonds Intermediate Accounting 2
Prof Albrecht s Notes Accounting for Bonds Intermediate Accounting 2 Companies need capital to fund the acquisition of various resources for use in business operations. They get this capital from owners
More informationLesson 9 Debt and Equity Financing
Lesson 9 Balance Sheet Lesson 9 Debt and Equity Financing Assets: Current Assets: Accounts receivable Less: Allowance for Uncollectible A/R Inventories Prepaid Expenses Long-Term Assets: Property and Equipment
More informationClick to edit Master title style
1 Adeng Pustikaningsih, M.Si. Dosen Jurusan Pendidikan Akuntansi Fakultas Ekonomi Universitas Negeri Yogyakarta CP: 08 222 180 1695 Email : adengpustikaningsih@uny.ac.id 1 2 15 Bonds Payable and Investments
More informationQuestions 1. What is a bond? What determines the price of this financial asset?
BOND VALUATION Bonds are debt instruments issued by corporations, as well as state, local, and foreign governments to raise funds for growth and financing of public projects. Since bonds are long-term
More informationCalculator practice problems
Calculator practice problems The approved calculator for the CPA Preparatory Courses is the BAII Plus calculator. Being efficient in using your calculator is essential for success in the
More informationJohn J. Wild Sixth Edition
Financial Accounting John J. Wild Sixth Edition McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Reporting and Analyzing Long-Term Liabilities Conceptual
More informationLONG-TERM LIABILITIES
Chapter 14 LONG-TERM LIABILITIES PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA Winston Kwok, Ph.D.,
More informationI. Asset Valuation. The value of any asset, whether it is real or financial, is the sum of all expected future earnings produced by the asset.
1 I. Asset Valuation The value of any asset, whether it is real or financial, is the sum of all expected future earnings produced by the asset. 2 1 II. Bond Features and Prices Definitions Bond: a certificate
More informationChapter 14 In a Set of Financial Statements, What Information Is Conveyed about Noncurrent Liabilities Such as Bonds?
This is In a Set of Financial Statements, What Information Is Conveyed about Noncurrent Liabilities Such as, chapter 14 from the book Accounting in the Finance World (index.html) (v. 1.0). This book is
More informationMath 34: Section 7.2 (Bonds)
Math 34: 2016 Section 7.2 (Bonds) Bond is a type of promissory note. A bond written agreement between borrower and a lender specifying the terms of the loan. We usually use the word bond when the borrower
More informationBefore Class starts.(make sure your name is on all submissions)
Before Class starts.(make sure your name is on all submissions) Last Homework due Thursday 4/17 before class. Final Exam is Saturday May 3 9:00-Noon; Conflicts? Contact me ASAP! What questions do you have
More information> DO IT! Chapter 15 Long-Term Liabilities. Bond Terminology. Bond Issuance D-69. Solution. Solution
Chapter 15 Long-Term Liabilities Bond Terminology Review the types of bonds and the basic terms associated with bonds. State whether each of the following statements is true or false. 1. Mortgage bonds
More informationChapter 10 - REPORTING AND ANALYZING LIABILITIES
Revised Summer 2018 Chapter 10 Review 1 Chapter 10 - REPORTING AND ANALYZING LIABILITIES LO 1: Explain how to account for current liabilities. Current Liability: a debt that a company expects to pay 1.
More informationExam 1 Acct 414 Corporate Accounting & Reporting II Spring 2011
Exam # Name: Exam 1 Acct 414 Corporate Accounting & Reporting II Spring 2011 Show any necessary computations if you want to be eligible for partial credit. Present your work in a neat, well-organized manner.
More informationFinancial Instruments: Presentation INTRODUCTION
IAS 32 Financial Instruments: Presentation INTRODUCTION Objective Scope Application The stated objective of IAS 32 is to establish principles for presenting financial instruments as liabilities or equity
More information1. Securities Markets, Investment Securities, and Economic Factors
1. Securities Markets, Investment Securities, and Economic Factors What is a Security Investment of Money In pooled interest With expectation of Profit Managed by third party 2 primary types, and a third
More informationExercise Maturity Interest paid Stated rate Effective (market) rate 10 years annually 10% 12%
Exercise 14-2 1. Maturity Interest paid Stated rate Effective (market) rate 10 years annually 10% 12% Interest $100,000 x 5.65022 * = $565,022 Principal $1,000,000 x 0.32197 ** = 321,970 Present value
More informationAccounting for Long-Term Debt
Accounting for Long-Term Debt 15.511 Corporate Accounting Summer 2004 Professor S. P. Kothari Sloan School of Management Massachusetts Institute of Technology July 2, 2004 1 Agenda Long-Term Debt Extend
More informationNON-CURRENT (LONG-TERM) LIABILITIES
NON-CURRENT (LONG-TERM) LIABILITIES 1 MRI = Market Rate of Interest CR = Coupon Rate IE = Interest Expense FV = Fair Value PV = Present Value A&L = Assets & Liabilities CV = Carrying Value BS = Balance
More informationMBF1223 Financial Management Prepared by Dr Khairul Anuar
MBF1223 Financial Management Prepared by Dr Khairul Anuar L4 Bonds & Bonds Valuation www.notes638.wordpress.com Bonds - Introduction A bond is a debt instrument issued by a borrower which has borrowed
More informationProfit or loss recorded to Retained Earnings
Cash basis Recognizes transactions when cash or equivalents DIAGRAM OF T-ACCOUNTS METHODS & ORGS Balance Sheet as of 12/31/2100 Accrual basis Follows the matching principle and recognizes Assets = Liabilities
More informationCopyright 2015 Pearson Education, Inc. All rights reserved.
Chapter 4 Mathematics of Finance Section 4.1 Simple Interest and Discount A fee that is charged by a lender to a borrower for the right to use the borrowed funds. The funds can be used to purchase a house,
More informationBonds and Their Valuation
Chapter 7 Bonds and Their Valuation Key Features of Bonds Bond Valuation Measuring Yield Assessing Risk 7 1 What is a bond? A long term debt instrument in which a borrower agrees to make payments of principal
More information1) Which one of the following is NOT a typical negative bond covenant?
Questions in Chapter 7 concept.qz 1) Which one of the following is NOT a typical negative bond covenant? [A] The firm must limit dividend payments. [B] The firm cannot merge with another firm. [C] The
More informationCopyright 2009 The Learning House, Inc. Income Taxes and Investments Page 1 of 17
Copyright 2009 The Learning House, Inc. Income Taxes and Investments Page 1 of 17 Introduction Taxes are a significant expense for most companies and must be considered when analyzing a company. Differences
More informationHow to Account for Bonds
How to Account for Bonds Chapter 10c DETAILED SUMMARY Mark Krilanovich October 25, 2012 ACCT 230 In this document, "we" means "our company," "the buyer" means "the person who buys our bond," and "the owner"
More informationLONG TERM LIABILITIES (continued)
PROFESSOR S CLASS NOTES FOR UNIT 17 COB 241 Sections 13, 14, 15 Class on November 14, 2017 Unit 17 is a continuation of the topics in Chapter 10. Unit 17 picks up where Unit 16 left off. LONG TERM LIABILITIES
More informationValuing Bonds. Professor: Burcu Esmer
Valuing Bonds Professor: Burcu Esmer Valuing Bonds A bond is a debt instrument issued by governments or corporations to raise money The successful investor must be able to: Understand bond structure Calculate
More informationMidterm Review Package Tutor: Chanwoo Yim
COMMERCE 298 Intro to Finance Midterm Review Package Tutor: Chanwoo Yim BCom 2016, Finance 1. Time Value 2. DCF (Discounted Cash Flow) 2.1 Constant Annuity 2.2 Constant Perpetuity 2.3 Growing Annuity 2.4
More informationCHAPTER 4 Bonds and Their Valuation Key features of bonds Bond valuation Measuring yield Assessing risk
4-1 CHAPTER 4 Bonds and Their Valuation Key features of bonds Bond valuation Measuring yield Assessing risk 4-2 Key Features of a Bond 1. Par value: Face amount; paid at maturity. Assume $1,000. 2. Coupon
More informationName: ACC 4020 DW Take-Home Test #2
ACC 4020 DW Take-Home Test #2 Name: 1. Of the following items, the one that should be classified as a current asset is a. Trade installment receivables normally collectible in 18 months b. Cash designated
More informationINTRODUCTION TO FINANCIAL AND ACTUARIAL MATHEMATICS. Marek Šulista, Václav Nýdl, Gregory Moore
INTRODUCTION TO FINANCIAL AND ACTUARIAL MATHEMATICS Marek Šulista, Václav Nýdl, Gregory Moore 2 Text vznikl v rámci grantu FRVŠ 1632/2005. Chapter 1 BONDS Bond or debenture is a debt instrument that obligates
More informationPrepare, Apply, and Confirm with MyFinanceLab
Prepare, Apply, and Confirm with MyFinanceLab Worked Solutions Provide step-by-step explanations on how to solve select problems using the exact numbers and data that were presented in the problem. Instructors
More informationCHAPTER 6 ACCOUNTING AND THE TIME VALUE OF MONEY. MULTIPLE CHOICE Conceptual
CHAPTER 6 ACCOUNTING AND THE TIME VALUE OF MONEY MULTIPLE CHOICE Conceptual 21. Which of the following transactions would require the use of the present value of an annuity due concept in order to calculate
More informationNovember 7, 2005 Anderson ECON 136B Midterm #2 Name
November 7, 2005 Anderson ECON 136B Midterm #2 Name Complete the multiple choice questions (#1-25) on a green scantron, and the problems in your blue-book. 1. The term used for bonds that are unsecured
More informationMBF1223 Financial Management Prepared by Dr Khairul Anuar
MBF1223 Financial Management Prepared by Dr Khairul Anuar L4 Bonds & Bonds Valuation www.mba638.wordpress.com Bonds - Introduction A bond is a debt instrument issued by a borrower which has borrowed a
More informationSU 3.1 Property, Plant, and Equipment
Part 1 Study Unit 3 SU 3.1 Property, Plant, and Equipment Overview Property, plant and equipment are also referred to as fixed assets, or capital assets. Last more than 1 year. Are for production or benefit
More informationMoney and Banking. Semester 1/2016
Money and Banking Semester 1/2016 Score Allocation Quizzes 10% Mid-Term Exam 30% Final Exam 30% Individual and Group Reports 20% Class Participation 10% >>> Total 100% Classroom Disciplines I expect regular
More informationEnabling Meaningful Learning of Students
Professional Development Programme for Teacher of Self-financing Tertiary Education in Hong Kong Enabling Meaningful Learning of Students Module 1B Designing a curriculum in IA context - Models of learning:
More informationI. Introduction to Bonds
University of California, Merced ECO 163-Economics of Investments Chapter 10 Lecture otes I. Introduction to Bonds Professor Jason Lee A. Definitions Definition: A bond obligates the issuer to make specified
More informationAccounting Cheat Sheet
DIAGRAM OF TACCOUNTS Assets = Balance Sheet as of 12/31/20 Liabilit ies + = + Equity METHODS & ORGS Accrual basis Follows the matching principle and recognizes transactions as they occur (GAAP Method)
More informationKEY CONCEPTS AND SKILLS
Chapter 5 INTEREST RATES AND BOND VALUATION 5-1 KEY CONCEPTS AND SKILLS Know the important bond features and bond types Comprehend bond values (prices) and why they fluctuate Compute bond values and fluctuations
More informationMortgages & Equivalent Interest
Mortgages & Equivalent Interest A mortgage is a loan which you then pay back with equal payments at regular intervals. Thus a mortgage is an annuity! A down payment is a one time payment you make so that
More informationIntermediate Financial Reporting 2 Primer
Intermediate Financial Reporting 2 Chartered Professional Accountants of Canada, CPA Canada, CPA are trademarks and/or certification marks of the Chartered Professional Accountants of Canada. 2018, Chartered
More informationLearning Module 5 Time Value of Money & Hodgepodge of Other Stuff
Learning Module 5 Time Value of Money & Hodgepodge of Other Stuff The Concept of Future Value If you have $100 today and put it in the bank, how much will you have in the future? In order to put this concept
More informationSecurity Analysis. Bond Valuation
Security Analysis Bond Valuation Background on Bonds Bonds represent long-term debt securities Contractual Promise to pay future cash flows to investors The issuer of the bond is obligated to pay: Interest
More informationBond Valuation. FINANCE 100 Corporate Finance
Bond Valuation FINANCE 100 Corporate Finance Prof. Michael R. Roberts 1 Bond Valuation An Overview Introduction to bonds and bond markets» What are they? Some examples Zero coupon bonds» Valuation» Interest
More informationBond Valuation. Capital Budgeting and Corporate Objectives
Bond Valuation Capital Budgeting and Corporate Objectives Professor Ron Kaniel Simon School of Business University of Rochester 1 Bond Valuation An Overview Introduction to bonds and bond markets» What
More informationFINA 1082 Financial Management
FINA 1082 Financial Management Dr Cesario MATEUS Senior Lecturer in Finance and Banking Room QA259 Department of Accounting and Finance c.mateus@greenwich.ac.uk www.cesariomateus.com Contents Session 1
More informationAFM 371 Winter 2008 Chapter 25 - Warrants and Convertibles
AFM 371 Winter 2008 Chapter 25 - Warrants and Convertibles 1 / 20 Outline Background Warrants Convertibles Why Do Firms Issue Warrants And Convertibles? 2 / 20 Background when firms issue debt, they sometimes
More informationCEBU CPAR CENTER. M a n d a u e C I t y
Page 1 of 11 CEBU CPAR CENTER M a n d a u e C I t y AUDITING PROBLEMS AUDIT OF LIABILITIES PROBLEM NO. 1 In the audit of the Heats Corporation s financial statements at December 31, 2005, the chief accountant
More informationLesson 9: Breaking Down the Balance Sheet
Lesson 9: Breaking Down the Balance Sheet As we touched upon in previous lessons, a balance sheet is divided into three categories: Assets, Liabilities, and Owner s Equity. This lesson will go over each
More information2010 To accrue the expense and liability for vacations: Vacation Wages Payable 7,740. To record vacation time paid:
FA 2.3 EXERCISE 13-10 (25-30 minutes) (a) 2010 To accrue the expense and liability for vacations: Wages Expense 7,740 (1) Vacation Wages Payable 7,740 To record vacation time paid: No entry. 2011 To accrue
More informationPRINCIPLES OF FINANCIAL AND MANAGERIAL ACCOUNTING II. Long-Term Liabilities. 1. Determine and record the selling price of bonds payable.
Objectives: PRINCIPLES OF FINANCIAL AND MANAGERIAL ACCOUNTING II Long-Term Liabilities 1. Determine and record the selling price of bonds payable. 2. Determine and record amortization of premium and discount
More informationExercises. The bond is being issued at a premium, and the selling price would be higher than the face amount.
Chapter 11 Liabilities: Bonds Payable Study Guide Solutions Fill-in-the-Blank Equations 1. A discount 2. The face amount 3. A premium 4. Interest expense Exercises 1. Roses Corporation issued a bond with
More informationAccounting & Reporting of Financial Instruments 2016
Illustration 1 (Exchange of Financial Liability at Unfavorable terms) A company borrowed 50 lacs @ 12% p.a. Tenure of the loan is 10 years. Interest is payable every year and the principal is repayable
More informationFinancial Instruments (Basic)
Financial Instruments (Basic) Suggested Solutions Initial recognition Test your knowledge Which one should be recognised? Purchase order to purchase goods when placing an order Unconditional trade or loan
More informationOriginal SSAP and Current Authoritative Guidance: SSAP No. 15
Statutory Issue Paper No. 80 Debt STATUS Finalized March 16, 1998 Original SSAP and Current Authoritative Guidance: SSAP No. 15 Type of Issue: Common Area SUMMARY OF ISSUE 1. Current statutory accounting
More informationLecture 7 Foundations of Finance
Lecture 7: Fixed Income Markets. I. Reading. II. Money Market. III. Long Term Credit Markets. IV. Repurchase Agreements (Repos). 0 Lecture 7: Fixed Income Markets. I. Reading. A. BKM, Chapter 2, Sections
More informationAn Overview of the Impairment Requirements of IFRS 9 Financial Instruments
An Overview of the Impairment Requirements of IFRS 9 Financial Instruments February 2017 Introduction... 2 Key Differences Between IAS 39 and IFRS 9 Impairment Models... 2 General Impairment Approach...
More informationIAS 32, IAS 39, IFRS 4 and IFRS 7 (Part 2) October MBA MSc BBA ACA ACIS CFA CPA(Aust.) CPA(US) FCCA FCPA(Practising) MSCA Nelson 1
IAS 32, IAS 39, IFRS 4 and IFRS 7 (Part 2) October 2008 Nelson Lam 林智遠 MBA MSc BBA ACA ACIS CFA CPA(Aust.) CPA(US) FCCA FCPA(Practising) MSCA 2006-08 Nelson 1 Main Coverage IAS 32 IAS 39 Presentation Classification
More informationSolutions to Final Exam, BA 202A, Fall 1999
Solutions to Final Exam, BA 202A, Fall 1999 Solution for Marketable Securities Question: a. Since A is a trading security, its unrealized gain or loss appears in income. Since it is the only trading security
More informationAnesu Daka CA(SA) - CAA
FAC4863 4 August 2015 Tut 105/106 1. IAS 21- The effects of changes in foreign exchange rates 2. IAS32/39/IFRS9&7-Financial instruments 3. IAS 39-Hedging 4. IAS 33-Earnings per share 5. IAS 17- Leases
More informationCHAPTER 14. Bond Prices and Yields INVESTMENTS BODIE, KANE, MARCUS. Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
CHAPTER 14 Bond Prices and Yields McGraw-Hill/Irwin Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 14-2 Bond Characteristics Bonds are debt. Issuers are borrowers and holders are
More informationBen Lemoine Institutional Advisor Darcy Weeks Manager, Investment Operations
Ben Lemoine Institutional Advisor Darcy Weeks Manager, Investment Operations 1 Permissible Credit Union Investments Investment Cash Flow Characteristics Prepayment Speeds Price/Yield Inverse Relationship
More informationFinancial Accounting (Corporation)
Financial Accounting (Corporation) This course covers the topics shown below. Students navigate learning paths based on their level of readiness. Institutional users may customize the scope and sequence
More informationPurpose of the Capital Market
BOND MARKETS Purpose of the Capital Market Original maturity is greater than one year, typically for long-term financing or investments Best known capital market securities: Stocks and bonds Capital Market
More informationAN ALTERNATIVE APPROACH FOR TEACHING THE INTEREST METHOD AMORTIZATION OF BOND PREMIUMS AND DISCOUNTS
AN ALTERNATIVE APPROACH FOR TEACHING THE INTEREST METHOD AMORTIZATION OF BOND PREMIUMS AND DISCOUNTS Stephen T. Scott Associate Professor School of Commerce Northwestern Business College Chicago, IL 5733
More informationChapter 5. Interest Rates and Bond Valuation. types. they fluctuate. relationship to bond terms and value. interest rates
Chapter 5 Interest Rates and Bond Valuation } Know the important bond features and bond types } Compute bond values and comprehend why they fluctuate } Appreciate bond ratings, their meaning, and relationship
More informationFixed income security. Face or par value Coupon rate. Indenture. The issuer makes specified payments to the bond. bondholder
Bond Prices and Yields Bond Characteristics Fixed income security An arragement between borrower and purchaser The issuer makes specified payments to the bond holder on specified dates Face or par value
More informationChapter 14 In a Set of Financial Statements, What Information Is Conveyed about Noncurrent Liabilities Such as Bonds?
This is In a Set of Financial Statements, What Information Is Conveyed about Noncurrent Liabilities Such as, chapter 14 from the book Business Accounting (index.html) (v. 2.0). This book is licensed under
More informationNotes Receivable A note is a written promise to pay a specific amount at a specific future date. Includes an interest cost for the term of the note
RECEIVABLES Accounts Receivable Amounts due from customers for credit sales. Credit sales require: o Maintaining a separate account receivable for each customer. o Accounting for bad debts that result
More informationChapter 5. Bonds, Bond Valuation, and Interest Rates
Chapter 5 Bonds, Bond Valuation, and Interest Rates 1 Chapter 5 applies Time Value of Money techniques to the valuation of bonds, defines some new terms, and discusses how interest rates are determined.
More informationChapter 16. Managing Bond Portfolios
Chapter 16 Managing Bond Portfolios Change in Bond Price as a Function of Change in Yield to Maturity Interest Rate Sensitivity Inverse relationship between price and yield. An increase in a bond s yield
More informationAnesu Daka CA(SA)- CAA
FAC4861 4 August 2015 Tut 105/106 1. IAS32/39/IFRS9&7-Financial instruments 2. IAS 33-Earnings per share 3. IAS 17- Leases Forex Transactions: IAS 21 Effects in foreign exchange rates transactions IAS
More information