Long-Term Liabilities pptx

Long-Term Liabilities Chapter 15 Bonds: An Introduction • A bond is an interest bearing long-term note payable. • Bonds are groups of notes payable issued to multiple lenders called bondholders. – principal – interest rate – interest payment dates Types of Bonds Term bonds Serial bonds Secured or mortgage bonds Debenture bonds Bond Prices • A bond is quoted as a percent of its face value. • A quote of 99½ means that a $1,000 bond sells for $1,000 × 0.995, or $995. • Bond prices are affected by – time to maturity. – credit rating of issuer. – interest rate. Present Value • The amount invested today receives a greater amount at a future date which is called the present value of a future amount. • It depends upon – the amount of the future receipt. – the length of time to the future receipt. – interest rate for the period. Issuing Bonds Payable to Borrow Money • On January 1, Granite Corp. issued $1,000,000 of 10%, 10-year bonds. January 1 Cash 1,000,000 Bonds Payable 1,000,000 To issue 10%, 10-year bonds Issuing Bonds Payable to Borrow Money • What is the entry for the interest payment of July 1? • $1,000,000 × 10% × 1/2 = $50,000 July 1 Interest Expense 50,000 Cash 50,000 To record semiannual interest Issuing Bonds and Notes Payable Between Interest Dates • On March 31, Granite Corp. sells $1,0000,000 of 10%, 10-year bonds dated January 1. March 31 Cash 1,025,000 Bonds Payable 1,000,000 Interest Payable 25,000 To issue 10%, 10-year bonds at par three months after original issue date Issuing Bonds and Notes Payable Between Interest Dates • What is the July 1 interest expense? • $1,000,000 × 10% × 1/4 = $25,000 June 30 Interest Expense 25,000 Interest Payable 25,000 Cash 50,000 To pay semiannual interest A 10-year, $1,000,000 bond issue is sold by Granite Corp. at 99¼ on January 1. The contract rate of interest is 10% (20 periods). Cash 992,500 Discount on Bonds Payable 7,500 Bonds Payable 1,000,000 To issue 10%, 10-year bonds at a discount Issuing Bonds Payable at a Discount [...]... Portion of Long-Term Debt • Serial bonds and serial notes are payable in installments • The portion payable within one year is a current liability • The remaining debt is long term Objective 4 Report Liabilities on the Balance Sheet Report Liabilities on the Balance Sheet • Notes payable and bonds payables are reported as liabilities on the balance sheet as either current or long-term Current Liabilities: ... issuance of the bonds) Long-term liabilities: Bonds payable, 10%, due 20xx Premium of bonds payable $1,000,000 10,000 $1,010,000 Straight-Line Amortization of Bond Premium July 1 Interest Expense 40,500 Premium on Bonds Payable 500 Cash 50,000 Paid semiannual interest and amortized premium on bonds payable Reporting Bonds Payable Granite Balance Sheet (December 31) Long-term liabilities: Bonds payable,... Balance Sheet • Notes payable and bonds payables are reported as liabilities on the balance sheet as either current or long-term Current Liabilities: Notes payable, current………$200,000 Long-term Liabilities Notes payable, long-term … $300,000 . Long-Term Liabilities Chapter 15 Bonds: An Introduction • A bond is an interest bearing long-term note payable. • Bonds are groups of notes. Bonds Payable at a Premium Granite Balance Sheet (immediately after issuance of the bonds) Long-term liabilities: Bonds payable, 10%, due 20xx $1,000,000 Premium of bonds payable 10,000 $1,010,000 . bonds payable Straight-Line Amortization of Bond Premium Granite Balance Sheet (December 31) Long-term liabilities: Bonds payable, 10%, due 20xx $1,000,000 Premium on bonds payable 9,000 $1,009,000 Reporting