AccountingPrinciplesLong-TermLiabilities幻灯片.pptxVIP

15Long-Term LiabilitiesLearning ObjectivesDescribe the major characteristics of bonds.1Explain how to account for bond transactions.2Explain how to account for long-term notes payable.3Discuss how long-term liabilities are reported and analyzed.4Describe the major characteristics of bonds.LEARNINGOBJECTIVE1Long-term liabilities are obligations that are expected to be paid after one year.Bonds are a form of interest-bearing notes payable.Sold in small denominations (usually $1,000 or multiples of $1,000). Attract many investors. Corporation issuing bonds is borrowing money.Person who buys the bonds (the bondholder) is investing in bonds.LO 1Types of BondsLO 1BondsIssuing ProceduresState laws grant corporations the power to issue bonds.Board of directors and stockholders must approve bond issues.Board of directors must stipulate number of bonds to be authorized, total face value, and contractual interest rate.Bond terms set forth in legal document known as a bond indenture.Bond certificate, typically a $1,000 face value.LO 1BondsIssuing ProceduresRepresents a promise to pay: sum of money at designated maturity date, plusperiodic interest at a contractual (stated) rate on the maturity amount (face value).Interest payments usually made semiannually. Issued to obtain large amounts of long-term capital.Investment company sells the bonds for the issuing company.LO 1Illustration 15-1Bond certificateLO 1Determining the Market Value of a BondCurrent market price (present value) is a function of the three factors: dollar amounts to be received, length of time until the amounts are received, and market rate of interest. The market interest rate is the rate investors demand for loaning funds.LO 1Determining the Market Value of a BondIllustration: Assume that Acropolis Company on January 1, 2017, issues $100,000 of 9% bonds, due in five years, with interest payable annually at year-end. The purchaser of the bonds would receive the following two types of cash payments: (1) princip