Lecture Fundamental accounting principles - Chapter 14: Long-term liabilities. After completing this chapter you should be able to: 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. | Long-Term Liabilities Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill .Education Chapter 14 PowerPoint Editor: Beth Kane, MBA, CPA Wild, Shaw, and Chiappetta Fundamental Accounting Principles 22nd Edition Chapter 14: Long-Term Liabilities 14-A1: Bond Financing 2 Bond Interest Payments Corporation Investors Bond Issue Date Bond Interest Payments Interest Payment = Bond Par Value × Stated Interest Rate x Time Bond Financing Transactions during the bond life P1 3 Projects that demand large amounts of money often are funded from bond issuances. (Both for-profit and nonprofit companies, as well as governmental units, such as nations, states, cities, and school districts, issue bonds.) A bond is its issuer’s written promise to pay an amount identified as the par value of the bond with interest. The par value of a bond, also called the face amount or face value, is paid at a specified future date known as the bond’s maturity date. Most bonds also require the issuer to make semiannual interest payments. The amount of interest paid each period is determined by multiplying the par value of the bond by the bond’s contract rate of interest for that same period. Bond Financing Bonds do not affect owner control. Interest on bonds is tax deductible. Bonds can increase return on equity. Advantages Bonds require payment of both periodic interest and par value at maturity. Bonds can decrease return on equity. Disadvantages A1 4 There are three main advantages of bond financing: 1. Bonds do not affect owner control. Equity financing reflects ownership in a company, whereas bond financing does not. A person who contributes $1,000 of a company’s $10,000 equity financing typically controls one-tenth of all owner decisions. A person who owns a $1,000, 11%, 20-year bond has no ownership right. This person, or bond- holder, is to receive from the bond issuer 11% interest, or $110, each year | Long-Term Liabilities Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill .Education Chapter 14 PowerPoint Editor: Beth Kane, MBA, CPA Wild, Shaw, and Chiappetta Fundamental Accounting Principles 22nd Edition Chapter 14: Long-Term Liabilities 14-A1: Bond Financing 2 Bond Interest Payments Corporation Investors Bond Issue Date Bond Interest Payments Interest Payment = Bond Par Value × Stated Interest Rate x Time Bond Financing Transactions during the bond life P1 3 Projects that demand large amounts of money often are funded from bond issuances. (Both for-profit and nonprofit companies, as well as governmental units, such as nations, states, cities, and school districts, issue bonds.) A bond is its issuer’s written promise to pay an amount identified as the par value of the bond with interest. The par value of a bond, also called the face amount or face value, is paid at a specified future .
