(BQ) Part 2 book "Financial accounting - An introduction to concepts, methods, and uses" has contents: Marketable securities and derivatives; intercorporate investments in common stock; notes, bonds, and leases; statement of cash flows - Another look,.and other contents. | C H A P T E R Notes, Bonds, and Leases 3. Understand the application of the fair value option to financial liabilities. 4. Develop an ability to distinguish between capital or finance leases and operating leases based on their economic characteristics, accounting criteria, and financial statement effects. 5. Develop the skills to account for capital or finance leases and operating leases. 1. Develop the skills to compute the issue price, carrying value, and current fair value of notes and bonds payable in an amount equal to the present value of the future contractual cash flows by applying the appropriate discount rate. 2. Understand the effective interest method, and apply it to debt amortization. L E A R N I N G OBJECTIVES C hapter 8 indicated that firms typically finance current operating assets, such as accounts receivable and inventories, with short-term borrowing or trade credit (delayed payments to suppliers). Firms use the cash received from customers within the next several months to repay short-term lenders and suppliers. Firms typically finance long-term assets, particularly property, plant, and equipment, with long-term borrowing or funds provided directly or indirectly by shareholders. This chapter discusses the accounting for long-term borrowing arrangements (that is, those requiring repayment later than one year from the date of the balance sheet). The more long-term debt in a firm’s capital structure, the greater the risk that the firm will experience difficulty making the required payments when due and, therefore, the greater is the risk of default or bankruptcy. Financial analysts use several financial statement ratios to assess risk related to long-term borrowing. One financial ratio is the long-term debt ratio. This ratio relates the amount of long-term debt to the amount of total financing. Long-Term Debt Ratio ϭ Long-Term Debt Liabilities 1 Shareholders’ Equity The debt-equity ratio relates long-term debt to shareholders’ equity,1
