15 Long-Term Liabilities

Learning Objectives
1 Describe the major characteristics of bonds.

2 Explain how to account for bond transactions.

3 Explain how to account for long-term notes payable.

Discuss how long-term liabilities are reported and

4 analyzed.
15-1
 LEARNING Describe the major characteristics of
1
OBJECTIVE bonds.

Long-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.

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 Types of Bonds

15-3 LO 1
 Bonds

Issuing Procedures
 State 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.
15-4 LO 1
 Bonds

Issuing Procedures
 Represents a promise to pay:
► sum of money at designated maturity date, plus
► periodic 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.

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 Illustration 15-1
Bond certificate

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LO 1
 Determining the Market Value of a Bond

Current market price (present value) is a function of the three

factors:

1. dollar amounts to be received,

2. length of time until the amounts are received, and

3. market rate of interest.

The market interest rate is the rate investors demand for

loaning funds.

15-7 LO 1
 Determining the Market Value of a Bond

Illustration: 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) principal of
$100,000 to be paid at maturity, and (2) five $9,000 interest
payments ($100,000 x 9%) over the term of the bonds.

Illustration 15-2
15-8 Time diagram depicting cash flows LO 1
 Determining the Market Value of a Bond

Illustration 15-2

The current market price of a bond is equal to the present value of

all the future cash payments promised by the bond.

Illustration 15-3
Computing the market price of bonds
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 DO IT! 1 Bond Terminology

State whether each of the following statements is true or false.

True 1. Mortgage bonds and sinking fund bonds are both
_______
examples of secured bonds.
True 2. Unsecured bonds are also known as debenture bonds.
_______
False 3. The stated rate is the rate investors demand for loaning
_______
funds.
True 4. The face value is the amount of principal the issuing
_______
company must pay at the maturity date.
False 5. The market price of a bond is equal to its maturity
_______
value.

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 LEARNING Explain how to account for bond
2
OBJECTIVE transactions.

Corporation records bond transactions when it

 issues (sells),
 redeems (buys back) bonds, and
 when bondholders convert bonds into common stock.

NOTE: If bondholders sell their bond investments to other investors,

the issuing company receives no further money on the transaction,
nor does the issuing company journalize the transaction.

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 Accounting for Bond Transactions

Issue at Face Value, Discount, or Premium?

Illustration 15-4
Interest rates and bond prices

Bond
Contractual
Interest
Rate 10%

15-12 Run slide show to reveal “Bonds Sell at.” LO 2

 Accounting for Bond Transactions

Question
The rate of interest investors demand for loaning funds to a
corporation is the:
a. contractual interest rate.
b. face value rate.
c. market interest rate.
d. stated interest rate.

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 Accounting for Bond Transactions

Question
Karson Inc. issues 10-year bonds with a maturity value of $200,000.
If the bonds are issued at a premium, this indicates that:
a. the contractual interest rate exceeds the market interest rate.
b. the market interest rate exceeds the contractual interest rate.
c. the contractual interest rate and the market interest rate are
the same.
d. no relationship exists between the two rates.

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 Issuing Bonds at Face Value

Illustration: On January 1, 2017, Candlestick, Inc. issues

$100,000, five-year, 10% bonds at 100 (100% of face value).
The entry to record the sale is:

Jan. 1 Cash 100,000

Bonds Payable 100,000

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 Issuing Bonds at Face Value

Illustration: On January 1, 2017, Candlestick, Inc. issues

$100,000, five-year, 10% bonds at 100 (100% of face value).
Assume that interest is payable annually on January 1. At
December 31, 2017, Candlestick recognizes interest
expense incurred with the following entry. Assume monthly
accruals have not been made.

Dec. 31 Interest Expense 10,000

Interest Payable 10,000

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 Issuing Bonds at Face Value

Illustration: On January 1, 2017, Candlestick, Inc. issues

$100,000, five-year, 10% bonds at 100 (100% of face value).
Assume that interest is payable annually on January 1.
Candlestick records the payment on January 1, 2018, as
follows.

Jan. 1 Interest Payable 10,000

Cash 10,000

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 Issuing Bonds at a Discount

Illustration: On January 1, 2017,

Candlestick, Inc. sells $100,000, five-year,
10% bonds for $98,000 (98% of face value).
Interest is payable annually January 1. The
entry to record the issuance is:

Jan. 1 Cash 98,000

Discount on Bonds Payable 2,000
Bonds Payable 100,000

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 Issuing Bonds at a Discount
Illustration 15-5
Statement Presentation Statement presentation of
discount on bonds payable

Carrying value or
book value

Sale of bonds below face value (discount) =

total cost of borrowing > interest paid.
Reason: Borrower is required to pay the bond discount at the
maturity date. Therefore, the bond discount is considered
to be a increase in the cost of borrowing.

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 Issuing Bonds at a Discount

Total Cost of Borrowing

Illustration 15-6

OR
Illustration 15-7

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 Issuing Bonds at a Discount

Illustration 15-8
Amortization of bond discount

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 Issuing Bonds at a Discount

Question
Discount on Bonds Payable:
a. has a credit balance.
b. is a contra account.
c. is added to bonds payable on the balance sheet.
d. increases over the term of the bonds.

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 Issuing Bonds at a Premium

Illustration: On January 1, 2017,

Candlestick, Inc. sells $100,000, five-year,
10% bonds for $102,000 (102% of face
value). Interest is payable annually
January 1. The entry to record the issuance
is:

Jan. 1 Cash 102,000

Bonds Payable 100,000
Premium on Bonds Payable 2,000

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 Issuing Bonds at a Premium
Illustration 15-9
Statement Presentation Statement presentation of
discount on bonds payable

Sale of bonds above face value (premium) =

total cost of borrowing < interest paid.
Reason: Borrower is not required to pay the bond premium
at the maturity date of the bonds. Therefore, the bond
premium is considered to be a reduction in the cost of
borrowing.
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 Issuing Bonds at a Premium

Total Cost of Borrowing

Illustration 15-10

OR
Illustration 15-11

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 Issuing Bonds at a Premium

Illustration 15-12
Amortization of bond premium

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 DO IT! 2a Bond Issuance

Giant Corporation issues $200,000 of bonds for $189,000. (a)

Prepare the journal entry to record the issuance of the bonds, and
(b) show how the bonds would be reported on the balance sheet at
the date of issuance.

Solution
(a) Cash 189,000
Discount on Bonds Payable 11,000
Bonds Payable 200,000
(b) Long-term liabilities
Bonds payable $200,000
Less: Discount on bonds payable 11,000 $189,000
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 REDEEMING BONDS AT MATURITY

Assuming that the company pays and records separately the

interest for the last interest period, Candlestick records the
redemption of its bonds at maturity as follows:

Jan. 1 Bonds Payable 100,000

Cash 100,000

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 REDEEMING BONDS BEFORE MATURITY

When bonds are redeemed before maturity, it is necessary to:

1. eliminate carrying value of bonds at redemption date;
2. record cash paid; and
3. recognize gain or loss on redemption.

The carrying value of the bonds is the face value of the bonds less any
remaining bond discount or plus any remaining bond premium at the
redemption date.

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 REDEEMING BONDS BEFORE MATURITY

Question
When bonds are redeemed before maturity, the gain or loss
on redemption is the difference between the cash paid and
the:
a. carrying value of the bonds.
b. face value of the bonds.
c. original selling price of the bonds.
d. maturity value of the bonds.

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 REDEEMING BONDS BEFORE MATURITY

Illustration: Assume Candlestick, Inc. has sold its bonds at a

premium. At the end of the fourth period, Candlestick retires
these bonds at 103 after paying the annual interest. The
carrying value of the bonds at the redemption date is $100,400.
Candlestick makes the following entry to record the redemption
at the end of the fourth interest period (January 1, 2021):

Jan. 1 Bonds Payable 100,000

Premium on Bonds Payable 400
Loss on Bond Redemption 2,600
Cash 103,000

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CONVERTING BONDS INTO COMMON STOCK

Until conversion, the bondholder receives interest on the

bond.

For the issuer, the bonds sell at a higher price and pay a
lower rate of interest than comparable debt securities
without the conversion option.

Upon conversion, the company transfers the carrying

value of the bonds to paid-in capital accounts. No gain or
loss is recognized.

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CONVERTING BONDS INTO COMMON STOCK

Illustration: On July 1, Saunders Associates converts

$100,000 bonds sold at face value into 2,000 shares of $10
par value common stock. Both the bonds and the common
stock have a market value of $130,000. Saunders makes the
following entry to record the conversion:

July 1 Bonds Payable 100,000

Common Stock (2,000 x $10) 20,000
Paid-in Capital in Excess of Par—
Common Stock 80,000

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CONVERTING BONDS INTO COMMON STOCK

Question
When bonds are converted into common stock:
a. a gain or loss is recognized.
b. the carrying value of the bonds is transferred to
paid-in capital accounts.
c. the market price of the stock is considered in the
entry.
d. the market price of the bonds is transferred to paid-
in capital.

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 People, Planet, and Profit Insight Unilever

How About Some Green Bonds?

Unilever recently began producing popular frozen treats such as Magnums and
Cornettos, funded by green bonds. Green bonds are debt used to fund activities
such as renewable- energy projects. In Unilever’s case, the proceeds from the
sale of green bonds are used to clean up the company’s manufacturing
operations and cut waste (such as related to energy consumption).
The use of green bonds has taken off as companies now have guidelines as to
how to disclose and report on these green-bond proceeds. These standardized
disclosures provide transparency as to how these bonds are used and their effect
on overall profitability. Investors are taking a strong interest in these bonds.
Investing companies are installing socially responsible investing teams and have
started to integrate sustainability into their investment processes. The disclosures
of how companies are using the bond proceeds help investors to make better
financial decisions.
Source: Ben Edwards, “Green Bonds Catch On.” Wall Street Journal (April 3, 2014), p. C5.
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 DO IT! 2b Bond Redemption

R & B Inc. issued $500,000, 10-year bonds at a discount. Prior

to maturity, when the carrying value of the bonds is $496,000,
the company redeems the bonds at 98. Prepare the entry to
record the redemption of the bonds.

Solution
Bonds Payable 500,000
Discount on Bonds Payable 4,000
Gain on Bond Redemption 6,000
Cash ($500,000 x 98%) 490,000

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 LEARNING Explain how to account for long-term
3
OBJECTIVE notes payable.

Long-Term Notes Payable

 May be secured by a mortgage that pledges title to
specific assets as security for a loan.
 Typically, the terms require the borrower to make
installment payments over the term of the loan. Each
payment consists of
1. interest on the unpaid balance of the loan and

2. a reduction of loan principal.

 Companies initially record mortgage notes payable at
face value.
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 Long-Term Notes Payable

Illustration: Porter Technology Inc. issues a $500,000, 8%,

20-year mortgage note on December 31, 2017. The terms
provide for semiannual installment payments of $50,926 (not
including real estate taxes and insurance).

Illustration 15-13
Mortgage installment payment schedule
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 Long-Term Notes Payable

Illustration: Porter Technology Inc. issues a $500,000, 8%,

20-year mortgage note on December 31, 2017. The terms
provide for semiannual installment payments of $50,926 (not
including real estate taxes and insurance). Prepare the
entries to record the mortgage and first payment.

Dec. 31 Cash 500,000

Mortgage Payable 500,000

Dec. 31 Interest Expense 40,000

Mortgage Payable 10,926
Cash 50,926
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 Long-Term Notes Payable

Question
Each payment on a mortgage note payable consists of:
a. interest on the original balance of the loan.
b. reduction of loan principal only.
c. interest on the original balance of the loan and
reduction of loan principal.
d. interest on the unpaid balance of the loan and
reduction of loan principal.

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 DO IT! 3 Long-Term Notes

Cole Research issues a $250,000, 6%, 20-year mortgage note to

obtain needed financing for a new lab. The terms call for annual
payments of $21,796 each. Prepare the entries to record the
mortgage loan and the first payment.

Solution

Cash 250,000
Mortgage Payable 250,000

Interest Expense ($250,000 x 6%) 15,000*

Mortgage Payable 6,796
Cash 21,796

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 LEARNING Discuss how long-term liabilities are
4
OBJECTIVE reported and analyzed.
Illustration 15-14
Presentation Balance sheet presentation
of long-term liabilities

Companies report the current maturities of long-term debt under

current liabilities if they are to be paid within one year or the
operating cycle, whichever is longer.
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 Use of Ratios

Two ratios that provide information long-run solvency

and the ability to meet interest payments as they come
due are:
 Debt to Assets Ratio
 Times Interest Earned

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 Use of Ratios

Illustration: Kellogg Company reported total liabilities of $8,925

million, total assets of $11,200 million, interest expense of $295
million, income taxes of $476 million, and net income of $1,208
million.
Illustration 15-15
Debt to assets ratio

The higher the percentage of debt to assets, the greater the

risk that the company may be unable to meet its maturing
obligations.

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 Use of Ratios

Illustration: Kellogg Company reported total liabilities of

$8,925 million, total assets of $11,200 million, interest expense
of $295 million, income taxes of $476 million, and net income of
$1,208 million. Illustration 15-16
Times interest earned

Times interest earned indicates the company’s ability to meet

interest payments as they come due.

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 Debt and Equity Financing

Illustration 15-17
Advantages of bond financing
over common stock

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 Debt and Equity Financing
Illustration: Microsystems, Inc. is considering two plans for financing the
construction of a new $5 million plant. It is considering two alternatives for
raising an additional $5 million: Plan A involves issuing 200,000 shares of
common stock at the current market price of $25 per share. Plan B involves
issuing $5 million of 8% bonds at face value. Income before interest and
taxes will be $1.5 million; income taxes are expected to be 30%.

Illustration 15-18

15-47
 Lease Liabilities and Off-Balance-Sheet
Financing

A lease is a contractual arrangement between a lessor (owner

of the property) and a lessee (renter of the property).
Illustration 15-19

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 Lease Liabilities

The issue of how to report leases is the case of substance versus

form. Although technically legal title may not pass, the benefits
from the use of the property do.

Operating Lease Capital Lease

Journal Entry: Journal Entry:
Rent Expense xxx Leased Equipment xxx
Cash xxx Lease Liability xxx

A lease that transfers substantially all of the benefits and risks

of property ownership should be capitalized (only
noncancellable leases may be capitalized).

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 CAPITAL LEASES

To capitalize a lease, one or more of four criteria must be

met:
 Transfers ownership to the lessee.
 Contains a bargain purchase option.
 Lease term is equal to or greater than 75 percent of the
estimated economic life of the leased property.
 The present value of the minimum lease payments
(excluding executory costs) equals or exceeds 90 percent of
the fair value of the leased property.

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 CAPITAL LEASES

Illustration: Gonzalez Company decides to lease new equipment.

The lease period is four years; the economic life of the leased
equipment is estimated to be five years. The present value of the
lease payments is $190,000, which is equal to the fair market value
of the equipment. There is no transfer of ownership during the
lease term, nor is there any bargain purchase option.

Instructions:
a. What type of lease is this? Explain.
b. Prepare the journal entry to record the lease.

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 CAPITAL LEASES

Illustration: (a) What type of lease is this? Explain.

Capitalization Criteria: Capital Lease?

1. Transfer of ownership NO
2. Bargain purchase option NO
3. Lease term => 75% of Lease term
economic life of leased
property 4 yrs.
4. Present value of minimum Economic life
lease payments => 90% of YES - PV and FMV
5 yrs.
are the same.
FMV of property
YES
15-52
80% LO 4
 CAPITAL LEASES

Illustration: (b) Prepare the journal entry to record the lease.

Leased Asset - Equipment 190,000

Lease Liability 190,000

The portion of the lease liability expected to be paid in the next

year is a current liability.
The remainder is classified
as a long-term liability.

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 CAPITAL LEASES

Question
The lessee must record a lease as an asset if the lease:
a. transfers ownership of the property to the lessor.
b. contains any purchase option.
c. term is 75% or more of the useful life of the leased
property.
d. payments equal or exceed 90% of the fair market
value of the leased property.

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 Investor Insight “Covenant-Lite” Debt

In many corporate loans and bond issuances, the lending agreement specifies debt
covenants. These covenants typically are specific financial measures, such as minimum
levels of retained earnings, cash flows, times interest earned, or other measures that a
company must maintain during the life of the loan. If the company violates a covenant, it is
considered to have violated the loan agreement. The creditors can then demand immediate
repayment, or they can renegotiate the loan’s terms. Covenants protect lenders because
they enable lenders to step in and try to get their money back before the borrower gets too
deeply into trouble. During the 1990s, most traditional loans specified between three to six
covenants or “triggers.” In more recent years, when lots of cash was available, lenders
began reducing or completely eliminating covenants from loan agreements in order to be
more competitive with other lenders. Lending to weaker companies on easy terms is now
common as investors’ appetite for higher-yielding debt grows stronger and the Federal
Reserve keeps money flowing at ultralow rates. Since the 2008 financial crisis, companies
have been able to borrow more without offering investors what were once considered
standard protections against possible losses.
Sources: Cynthia Koons, “Risky Business: Growth of ’Covenant-Lite’ Debt,” Wall Street Journal (June
18, 2007), p. C2; and Katy Burne, “More Loans Come with Few Strings Attached,” Wall Street Journal
June 12, 2014).

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 DO IT! 4 Lease Liability

FX Corporation leases new equipment on December 31, 2017. The

lease transfers ownership to FX at the end of the lease. The present
value of the lease payments is $240,000. After recording this lease,
FX has assets of $2,000,000, liabilities of $1,200,000, and
stockholders’ equity of $800,000. (a) Prepare the entry to record the
lease, and (b) compute the debt to assets ratio at year-end.

(a) Leased Asset—Equipment 240,000

Lease Liability 240,000

(b) The debt to assets ratio = $1,200,000 ÷ $2,000,000 = 60%.

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 LEARNING APPENDIX 15A: Apply the straight-line method of
OBJECTIVE
5 amortizing bond discount and bond premium.

Amortizing Bond Discount

Illustration: Candlestick, Inc., sold $100,000, five-year, 10%
bonds on January 1, 2017, for $98,000 (discount of $2,000).
Interest is payable on January 1.
Illustration 15C-2

Illustration 15A-2
15-57 Bond discount amortization schedule LO 5
 Amortizing Bond Discount

Illustration: Candlestick, Inc., sold $100,000, five-year, 10%

bonds on January 1, 2017, for $98,000 (discount of $2,000).
Interest is payable on January 1. The bond discount amortization
for each interest period is $400 ($2,000 ÷ 5).
Journal entry to record the first accrual of bond interest and the
amortization of bond discount on December 31 as follows.

Dec. 31 Interest Expense 10,400

Discount on Bonds Payable 400
Interest Payable 10,000

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 Amortizing Bond Premium

Illustration: Candlestick, Inc., sold $100,000, five-year, 10%

bonds on January 1, 2017, for $102,000 (premium of $2,000).
Interest is payable on January 1.

Illustration 15A-4
Bond premium amortization
schedule

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 Amortizing Bond Premium

Illustration: Candlestick, Inc., sold $100,000, five-year, 10%

bonds on January 1, 2017, for $102,000 (premium of $2,000.
Interest is payable on January 1. The bond premium amortization
for each interest period is $400 ($2,000 ÷ 5).
Candlestick records the first accrual of interest on December 31
as follows.

Dec. 31 Interest Expense 9,600

Premium on Bonds Payable 400
Interest Payable 10,000

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 LEARNING APPENDIX 15B: Apply the effective-interest method
OBJECTIVE
6 of amortizing bond discount and bond premium.

Under the effective-interest method, the amortization of

bond discount or bond premium results in period interest
expense equal to a constant percentage of the carrying value
of the bonds.
Required steps:
1. Compute the bond interest expense.
2. Compute the bond interest paid or accrued.
3. Compute the amortization amount.

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 Effective-Interest Method

Required steps:
1. Compute the bond interest expense.
2. Compute the bond interest paid or accrued.
3. Compute the amortization amount.

Illustration 15B-1
Computation of amortization
using effective-interest method

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 Effective-Interest Method

Amortizing Bond Discount

Illustration: Candlestick, Inc. issues $100,000 of 10%, five-year
bonds on January 1, 2017, for $98,000, with interest payable each
January 1. This results in a discount of $2,000.

Illustration 15B-2

Illustration 15B-2
Bond discount amortization schedule

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 Amortizing Bond Discount Illustration 15B-2
Bond discount
amortization schedule

Candlestick, Inc. records the accrual of interest and amortization

of bond discount on December 31 as follows.
Dec. 31 Interest Expense 10,324
Interest Payable 10,000
Discount on Bonds Payable 324
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 Amortizing Bond Discount Illustration 15B-2
Bond discount
amortization schedule

For the second interest period, at December 31, Candlestick

makes the following adjusting entry.
Dec. 31 Interest Expense 10,358
Interest Payable 10,000
Discount on Bonds Payable 358
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 Amortizing Bond Premium

Illustration: Candlestick, Inc. issues $100,000 of 10%, five-year

bonds on January 1, 2017, for $102,000, with interest payable
January 1. This results in a premium of $2,000.

Illustration 15B-4
Bond premium amortization
schedule

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 Amortizing Bond Premium Illustration 15B-4
Bond premium amortization
schedule

The entry Candlestick makes on December 31 is:

Dec. 31 Interest Expense 9,669

Premium on Bonds Payable 331
Interest Payable 10,000

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 A Look at IFRS

LEARNING Compare the accounting for long-term

7
OBJECTIVE liabilities under GAAP and IFRS.

Key Points
Similarities
 IFRS requires that companies classify liabilities as current or
noncurrent on the face of the statement of financial position (balance
sheet), except in industries where a presentation based on liquidity
would be considered to provide more useful information (such as
financial institutions). When current liabilities (also called short-term
liabilities) are presented, they are generally presented in order of
liquidity.

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 A Look at IFRS

Key Points
 Under IFRS, liabilities are classified as current if they are expected
to be paid within 12 months.
 Similar to GAAP, items are normally reported in order of liquidity.
Companies sometimes show liabilities before assets. Also, they will
sometimes show long-term liabilities before current liabilities.
 The basic calculation for bond valuation is the same under GAAP
and IFRS. In addition, the accounting for bond liability transactions is
essentially the same between GAAP and IFRS.

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 A Look at IFRS

Key Points
 IFRS requires use of the effective-interest method for amortization
of bond discounts and premiums. GAAP allows use of the
straight-line method where the difference is not material. Under
IFRS, companies do not use a premium or discount account but
instead show the bond at its net amount. For example, if a
$100,000 bond was issued at 97, under IFRS a company would
record:
Cash 97,000
Bonds Payable 97,000

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 A Look at IFRS

Key Points
Differences
 The accounting for convertible bonds differs across IFRS and
GAAP, Unlike GAAP, IFRS splits the proceeds from the
convertible bond between an equity component and a debt
component. The equity conversion rights are reported in equity.

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 A Look at IFRS

Key Points
Differences
 The IFRS leasing standard is IAS 17. Both Boards share the
same objective of recording leases by lessees and lessors
according to their economic substance—that is, according to the
definitions of assets and liabilities. However, GAAP for leases is
much more “rules-based” with specific bright-line criteria (such as
the “90% of fair value” test) to determine if a lease arrangement
transfers the risks and rewards of ownership; IFRS is more
conceptual in its provisions. Rather than a 90% cut-off, it asks
whether the agreement transfers substantially all of the risks and
rewards associated with ownership.

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 A Look at IFRS

Looking to the Future

The FASB and IASB are currently involved in two projects, each of which
has implications for the accounting for liabilities. One project is
investigating approaches to differentiate between debt and equity
instruments. The other project, the elements phase of the conceptual
framework project, will evaluate the definitions of the fundamental
building blocks of accounting. In addition to these projects, the FASB and
IASB have also identified leasing as one of the most problematic areas of
accounting. One of the first areas studied is, “What are the assets and
liabilities to be recognized related to a lease contract?” Should the focus
remain on the leased item or the right to use the leased item? This
question is tied to the Boards’ joint project on the conceptual framework—
defining an “asset” and a “liability.”

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 A Look at IFRS

IFRS Self-Test Questions

The accounting for bonds payable is:

a) essentially the same under IFRS and GAAP.
b) differs in that GAAP requires use of the straight-line method
for amortization of bond premium and discount.
c) the same except that market prices may be different
because the present value calculations are different
between IFRS and GAAP.
d) not covered by IFRS.

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 A Look at IFRS

IFRS Self-Test Questions

The leasing standards employed by IFRS:

a) rely more heavily on interpretation of the conceptual

meaning of assets and liabilities than GAAP.

b) are more “rules based” than those of GAAP.

c) employ the same “bright-line test” as GAAP.

d) are identical to those of GAAP.

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 A Look at IFRS

IFRS Self-Test Questions

The joint projects of the FASB and IASB could potentially:

a) change the definition of liabilities.
b) change the definition of equity.
c) change the definition of assets.
d) All of the above.

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 Copyright

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