Chapter 10 provides knowledge of long-term liabilities. In this chapter, the learning objectives are: Explain the types and payment patterns of notes, compare bond financing with stock financing, assess debt features and their implications, compute the debt-to-equity ratio and explain its use, prepare entries to record bond issuance and interest expense, compute and record amortization of bond discount, compute and record amortization of bond premium, record the retirement of bonds,. | Financial and Managerial Accounting Wild, Shaw, and Chiappetta Fourth Edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Long-Term Liabilities Conceptual Learning Objectives C1: Explain the types and payment patterns of notes. C2: Appendix 10A – Explain and compute the present value of an amount(s) to be paid at a future date(s). C3: Appendix 10C – Describe interest accrual when bond payment periods differ from accounting periods. C4: Appendix 10D – Describe the accounting for leases and pensions (see text for details). 10- A1: Compare bond financing with stock financing. A2: Assess debt features and their implications. A3: Compute the debt-to-equity ratio and explain its use. Analytical Learning Objectives 10- P1: Prepare entries to record bond issuance and interest expense. P2: Compute and record amortization of bond discount. P3: Compute and record amortization of bond premium. P4: Record the retirement of bonds. P5: Prepare entries to account for notes. Procedural Learning Objectives 10- Bonds do not affect stockholder control. Interest on bonds is tax deductible. Bonds can increase return on equity. Advantages of Bonds A1 10- Bonds require payment of both periodic interest and par value at maturity. Bonds can decrease return on equity when the company pays more in interest than it earns on the borrowed funds. Disadvantages of Bonds A1 10- . . .an investment firm called an underwriter. The underwriter sells the bonds to. . . A trustee monitors the bond issue. A company sells the bonds to. . . . . . investors Bond Issuing Procedures A1 10- Bond Issue Date Bond Interest Payments Bond Interest Payments Corporation Investors Interest Payment = Bond Par Value ´ Stated Interest Rate Basics of Bonds A1 10- Bond Discount or Premium P1 10- Bond Retirement The carrying value of the bond at maturity should equal its par value. Sometimes bonds are retired prior to their maturity. Two common ways to retire bonds are through the exercise of a callable option or through purchasing them on the open market. Callable bonds present several accounting issues including calculating gains and losses. P4 10- Secured and Unsecured Term and Serial Registered and Bearer Convertible and Callable Types of Bonds A2 10- Note Maturity Date Company Lender Note Date Long-Term Notes Payable Single Payment of Principal plus Interest Single Payment of Principal plus Interest C1 10- Note Maturity Date Company Lender Note Date Long-Term Notes Payable Regular Payments of Principal plus Interest Payments can either be equal principal payments plus interest or equal payments. Regular Payments of Principal plus Interest C1 10- End of Chapter 10 10-
