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Chapter 14 - Long Term Liabilities (Bonds & Notes)
Chapter 14 - Long Term Liabilities (Bonds & Notes)
Long-Term Liabilities:
14 Bonds and Notes
Accounting
27e
Warren
human/iStock/360/Getty Images
Reeve
Duchac
Learning Objectives
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Financing Corporations
(slide 1 of 5)
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Financing Corporations
(slide 2 of 5)
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Financing Corporations
(slide 3 of 5)
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Financing Corporations
(slide 4 of 5)
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Effect of Alternative Financing Plans—
$800,000 Earnings
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Financing Corporations
(slide 5 of 5)
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Effect of Alternative Financing Plans—
$440,000 Earnings
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Example Exercise Alternative Financing Plans
(slide 1 of 2)
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Example Exercise Alternative Financing Plans
(slide 2 of 2)
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Bond Characteristics and Terminology
(slide 1 of 2)
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Bond Characteristics and Terminology
(slide 2 of 2)
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Proceeds from Issuing Bonds
(slide 2 of 4)
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Issuing Bonds at a Discount,
at Face Amount, and at a Premium
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Proceeds from Issuing Bonds
(slide 3 of 4)
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Proceeds from Issuing Bonds
(slide 4 of 4)
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Accounting for Bonds Payable
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Bonds Issued at Face Amount
(slide 1 of 3)
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Bonds Issued at Face Amount
(slide 2 of 3)
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Bonds Issued at Face Amount
(slide 3 of 3)
• Every six months (on June 30 and December 31) after the
bonds are issued, interest of $6,000 ($100,000 × 12% × ½
year) is paid. The first interest payment on June 30, 20Y5, is
recorded as follows:
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Example Exercise Issuing Bonds at Face Amount
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Bonds Issued at a Discount
(slide 1 of 2)
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Bonds Issued at a Discount
(slide 2 of 2)
• Because the contract rate of interest is less than the market rate
of interest, the bonds will sell at less than their face amount.
Assuming the bonds sell for $96,406, the entry to record the
issuance of the bonds is as follows:
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Amortizing a Bond Discount
(slide 1 of 6)
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Amortizing a Bond Discount
(slide 2 of 6)
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Amortizing a Bond Discount
(slide 3 of 6)
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Amortizing a Bond Discount
(slide 4 of 6)
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Amortizing a Bond Discount
(slide 5 of 6)
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Example Exercise Discount Amortization
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Bonds Issued at a Premium
(slide 1 of 2)
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Bonds Issued at a Premium
(slide 2 of 2)
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Example Exercise Issuing Bonds at a Premium
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Amortizing a Bond Premium
(slide 1 of 4)
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Amortizing a Bond Premium
(slide 2 of 4)
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Amortizing a Bond Premium
(slide 3 of 4)
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Amortizing a Bond Premium
(slide 4 of 4)
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Bond Redemption
(slide 1 of 5)
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Bond Redemption
(slide 2 of 5)
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Bond Redemption
(slide 3 of 5)
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Bond Redemption
(slide 4 of 5)
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Example Exercise Redemption of Bonds Payable
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Installment Notes
(slide 1 of 2)
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Installment Notes
(slide 2 of 2)
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Issuing an Installment Note
(slide 1 of 3)
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Issuing an Installment Note
(slide 2 of 3)
6The amount of the annual payment is calculated by using the present value concepts
discussed in Appendix 1 at the end of this chapter. The annual payment of $5,698 is
computed by dividing the $24,000 loan amount by the present value of an annuity of
$1 for five periods at 6% (4.21236) from Exhibit 10 (rounded to the nearest dollar).
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Issuing an Installment Note
(slide 3 of 3)
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Annual Payments
(slide 1 of 5)
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Amortization of Installment Notes
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Annual Payments
(slide 2 of 5)
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Annual Payments
(slide 3 of 5)
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Annual Payments
(slide 4 of 5)
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Annual Payments
(slide 5 of 5)
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Example Exercise Journalizing Installment Notes
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Reporting Long-Term Liabilities
(slide 1 of 3)
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Reporting Long-Term Liabilities
(slide 2 of 3)
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Reporting Long-Term Liabilities
(slide 3 of 3)
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Financial Analysis and Interpretation:
Times Interest Earned Ratio (slide 1 of 2)
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Financial Analysis and Interpretation:
Times Interest Earned Ratio (slide 2 of 2)
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Example Exercise Times Interest Earned
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Appendix 1: Present Value Concepts
and Pricing Bonds Payable (slide 1 of 2)
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Appendix 1: Present Value Concepts
and Pricing Bonds Payable (slide 2 of 2)
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Appendix 1: Present Value Concepts
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Present Value and Future Value
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Present Value of an Amount
to Be Received in One Year
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Present Value of an Amount
to Be Received in Two Years
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Appendix 1: Present Value of an Amount
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Present Value of $1 at Compound Interest
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Appendix 1:
Present Value of the Periodic Receipts (slide 1 of 2)
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Present Value of an Annuity
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Appendix 1:
Present Value of the Periodic Receipts (slide 2 of 2)
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Present Value of an Annuity of $1
at Compound Interest
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Appendix 1: Pricing Bonds
(slide 1 of 2)
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Appendix 1: Pricing Bonds
(slide 2 of 2)
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Appendix 1:
Pricing Bonds: Market Rate of Interest of 12%
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Appendix 1:
Pricing Bonds: Market Rate of Interest of 13%
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Appendix 2: Interest Rate
Method of Amortization (slide 1 of 2)
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Appendix 2: Interest Rate
Method of Amortization (slide 2 of 2)
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Appendix 2: Amortization of
Discount by the Interest Method (slide 1 of 2)
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Amortization of Discount on Bonds Payable
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Appendix 2: Amortization of
Discount by the Interest Method (slide 2 of 2)
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Appendix 2: Amortization of
Premium by the Interest Method (slide 1 of 2)
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Amortization of Premium on Bonds Payable
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Appendix 2: Amortization of
Premium by the Interest Method (slide 2 of 2)
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