Kế toán, kiểm toán - Chapter 22: Long - Term bonds

1-*McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.Long-Term Bonds Section 1: Financing Through BondsChapter22Section ObjectivesName and define the various types of bonds.Explain the advantages and disadvantages of using bonds as a method of financing. Secured or unsecured Registered or unregistered Single-maturity or serial-maturityTypes of Bonds Name and define the various types of bondsSecured and UnsecuredSecured: specific property pledged as collateral.Unsecured: backed only by a company’s general credit.Unsecured bonds are known as debenturesObjective 1Registered and UnregisteredRegistered: issued to a particular purchaser listed in the corporation’s records.Unregistered (coupon): transferred by delivery; coupons attached for each interest payment.Single-Maturity and Serial-MaturitySingle-maturity: Bonds mature on the same day.Serial-maturity: Bonds are payable over a period of years.Types of Bonds The market interest rate is the interest rate a  corporation is willing to pay and investors  are willing to accept at the current time. The face interest rate refers to the contractual  interest rate specified on the bond.Interest RatesCapital StockBonds PayablePermanent CapitalNo debt to repay. DebtMust be repaid.Advantages and Disadvantages of Using Bonds as a Method of Financing Explain the advantages and disadvantages of using bondsas a method of financingObjective 2Capital StockBonds PayableStockholders’ EquityCommon stock has no legal requirement for dividends. Preferred stock requirements depend on contract.Dividends are not deductible for income tax purposes. Long-term liabilitiesInterest must be paid on the bonds.Interest is a deductible expense.Advantages and Disadvantages of Using Bonds as a Method of FinancingCapital StockBonds PayablePreference dividends on preferred stock are usually slightly higher than interest rates on bonds because there is more risk associated with preferred stock.Interest rates on bonds are usually slightly lower than dividends on preferred stock.Advantages and Disadvantages of Using Bonds as a Method of FinancingLong-Term Bonds Section 2: Bond Issue and InterestChapter22Section ObjectivesRecord the issuance of bonds.4. Record the payment of interest on bonds.Record the accrual of interest on bonds.Compute and record the periodic amortization of a bond premium.Compute and record the periodic amortization of a bond discount.On April 1, 2013, Charbo Corporation sells $50,000 ($1,000 x 50) of its 10-year bonds at face value for cashBonds Issued at Face Value2013 Apr. 1 Cash 50,000.00 10% Bonds Payable, 2023 50,000.00 Issued bonds at face value Record the issuance of bondsObjective 3Payment of InterestOn October 1, 2013, the interest for six months at 10 percent becomes due on the $50,000 of bonds issued. ($50,000 X 10% X 6/12 = $2,500)2013 Oct. 1 Bond Interest Expense 2,500.00 Cash 2,500.00 Paid semiannual bond interest Record the payment of interest on bondsObjective 4The issuing corporation must write off, or amortize, the premium over the period from date of issue of the bonds until date of maturity.If the face rate on the bonds exceeds the market rate of interest at the time the bonds are issued, the bonds will be issued at a premium.Amortizing the premium reduces the interest expense over the period the bonds are outstanding.Bond PremiumBonds Issued at a Discount2016 Apr. 1 Cash 48,880.00 Discount on Bonds Payable 1,120.00 10% Bonds Payable, 2023 50,000.00 Issue bonds at 97.76Compute and record the periodic amortization of a bond discountObjective 7Carrying Value of BondsFormula Bonds Payable+ Premium on Bonds – Discount on Bonds Carrying ValueCarrying value is also known as book valueLong-Term Bonds Section 3: Bond RetirementChapter22Section ObjectivesRecord the transactions of a bond sinking fund investment.Record an increase or decrease in retained earnings appropriated for bond retirement.Record retirement of bonds payable. The bond contract might require that retained  earnings are appropriated while the bonds are  outstandingRetained Earnings Appropriated for Bond Retirement Record an increase or decrease in retained earnings appropriated for bond retirementObjective 9 Corporation could have surplus cash,  so bonds are retired early. Interest rate decreases could result in  an early retirement of bonds. Early Retirement of Bonds QUESTION: What is the total book value to be removed?$49,040$50,000 face value 960 discount  book valueFace value – discountREMINDER: Gain or loss is the difference between book value of bonds retired and what is paid for themANSWER: