Kế toán, kiểm toán - Chapter 14: Long - Term liabilities

Chapter 14Long-Term LiabilitiesMcGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.Bond FinancingBonds 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 A1Bond TradingA1Bonds are securities that can be purchased or sold in the securities markets. They have a market value which is expressed as a percent of their par value. The closing price indicates that the IBM bond is being sold at 119.25% of face value. BondCertificateBond Selling PriceCorporationInvestorsBond IssuancesP1Transaction on the Bond Issue DateBond Interest PaymentsCorporationInvestorsBond Issue DateBond Interest PaymentsInterest Payment = Bond Par Value × Stated Interest Rate x TimeBond IssuancesTransactions during the bond lifeP1Bond Face ValueCorporationInvestorsBond IssuancesTransaction on the Maturity DateP1Issuing Bonds at ParOn Jan. 1, 2011, a company issued the following bonds:Par Value: $800,000Stated Interest Rate: 9%Interest Dates: 6/30 and 12/31Maturity Date = Dec. 31, 2030 (20 years)P1$800,000 × 9% × ½ year = $36,000Issuing Bonds at ParOn June 30, 2011, the issuer of the bond pays the first semiannual interest payment of $36,000.P1This entry is made every six months until the bonds mature.Issuing Bonds at ParOn December 31, 2030, the bonds mature and the issuer of the bond pays face value of $800,000 to the bondholders.P1Bond Discount or PremiumP1 Fila issues bonds with the following provisions: Par Value: $100,000 Issue Price: 96.454% of par value Stated Interest Rate: 8% Market Interest Rate: 10% Interest Dates: 6/30 and 12/31 Bond Date: Dec. 31, 2011 Maturity Date: Dec. 31, 2013 (2 years)Issuing Bonds at a Discount}Bond will sell at a discount.P2On Dec. 31, 2011, Fila should record the bond issue.Issuing Bonds at a DiscountPar value $ 100,000  Cash proceeds 96,454 Discount $ 3,546  *$100,000 x 96.454% Contra-LiabilityAccountP2 Effective Interest Amortization$96,454 × 5% = $4,823$100,000 - $2,723 = $97,277P2Amortizing a Bond DiscountP2 Adidas issues bonds with the following provisions: Par Value: $100,000 Issue Price: 103.546% of par value Stated Interest Rate: 12% Market Interest Rate: 10% Interest Dates: 6/30 and 12/31 Bond Date: Dec. 31, 2011 Maturity Date: Dec. 31, 2013 (2 years)Issuing Bonds at a Premium}Bond will sell at a premium.P3Issuing Bonds at a PremiumPar value $ 100,000  Cash proceeds 103,546 *Premium $ 3,546  *$100,000 x 103.546% Adjunct-LiabilityAccountOn Dec. 31, 2011, Adidas will record the bond issue as:P3Amortizing a Bond PremiumP3Bond PricingP2Cash Outflows related to Interest PaymentsCash Outflows for par value at end of Bond life Fila issues bonds with the following provisions: Par Value: $100,000 Issue Price: ? Stated Interest Rate: 8% Market Interest Rate: 10% Interest Dates: 6/30 and 12/31 Bond Date: Dec. 31, 2011 Maturity Date: Dec. 31, 2013 (2 years)Issuing Bonds at a DiscountP2Present Value of a Discount BondTo calculate Present Value, we need relevant interest rate and number of periods.Semiannual rate = 5% (Market rate 10% ÷ 2)Semiannual periods = 4 (Bond life 2 years × 2)$100,000 × 8% × ½ = $4,000P2Bond RetirementRetirement of the Fila bonds at maturity for $100,000 cash.Because any discount or premium will be fully amortized at maturity, the carrying amount of the bonds will be equal to par value.P4Bond RetirementRetirement of Bonds before MaturityCarrying Amount > Retirement Price = GainCarrying Amount < Retirement Price = LossAssume that $100,000 of callable bonds will be retired on July 1, 2011, after the first interest payment. The bond carrying amount is $104,500.The bonds have a call premium of $3,000. P4Bond RetirementBy ConversionOn January 1, $100,000 par value bonds of Converse, with a carrying amount of $100,000, are converted to 15,000 ordinary shares of $2 par value.15,000 shares × $2 par value per shareP4Note Maturity DateNote PayableCashCompanyLenderNote DateWhen is the repayment of the principal and interest going to be made?Long-Term Notes PayableC1Note Maturity DateCompanyLenderNote DateSingle Payment of Principal plus InterestSingle Payment of Principal plus InterestLong-Term Notes PayableC1Note Maturity DateCompanyLenderNote DateRegular Payments of Principal plus InterestPayments either can be equal principal payments plus interest or equal payments.Regular Payments of Principal plus InterestLong-Term Notes PayableC1Installment NotesOn January 1, 2011, Foghog borrows $60,000 from a bank to purchase equipment. It signs an 8% installment note requiring 6 annual payments of principal plus interest.Compute the periodic payment by dividing the face amount of the note by the present value factor.C1Installment Notes with Equal PaymentsC1Installment Notes with Equal PaymentsLet’s record the first payment made on December 31, 2011 by Foghog to the bank.Refer back to the amortization schedule to make the December 31, 2012 payment on the note.P5Mortgage Notes and BondsA legal agreement that helps protect the lender if the borrower fails to make the required payments.Gives the lender the right to be paid out of the cash proceeds from the sale of the borrower’s assets specifically identified in the mortgage contract. C1Secured and Unsecured Term and Serial Registered and BearerConvertible and CallableFeatures of Bonds and NotesA2This ratio helps investors determine the risk of investing in a company by dividing its total liabilities by total equity.Debt-to-Equity RatioDebt-to-Equity RatioTotal LiabilitiesTotal Equity=A3Present Value of $1 RatePeriods3%4%5%1 0.9709 0.9615 0.9524 2 0.9426 0.9246 0.9070 3 0.9151 0.8890 0.8638 4 0.8885 0.8548 0.8227 5 0.8626 0.8219 0.7835 6 0.8375 0.7903 0.7462 7 0.8131 0.7599 0.7107 8 0.7894 0.7307 0.6768 9 0.7664 0.7026 0.6446 10 0.7441 0.6756 0.6139 Appendix 14A: Present Values of Bonds and NotesFace amount = $100,000Contract rate = 8%Market rate = 10%Interest paid semiannually First, we calculate the present value of the principal repayment in 4 periods (2 years × 2 payments per year, using 5% market rate (10% annual rate ÷ 2 payments per year).$100,000 × 0.8227 = $82,270C2Present Value of Annuity of $1 RatePeriods3%4%5%1 0.9709 0.9615 0.9524 2 1.9135 1.8861 1.8594 3 2.8286 2.7751 2.7232 4 3.7171 3.6299 3.5460 5 4.5797 4.4518 4.3295 6 5.4172 5.2421 5.0757 7 6.2303 6.0021 5.7864 8 7.0197 6.7327 6.4632 9 7.7861 7.4353 7.1078 10 8.5302 8.1109 7.7217 Appendix 14A: Present Values of Bonds and Notes$100,000 × 8% × ½ = $4,000Semiannual Interest Annuity   Present AmountPV FactorValuePrincipal $ 100,000 0.8227 $ 82,270 Interest 8,000 3.5460 14,184 Issue price of debt  $ 96,454     $4,000 × 3.5460 = $14,184C2End of Chapter 14