Slide
Chapter
10
Liabilities
Bonds
are a form of interest-bearing notes payable.
Three
advantages
over ordinary shares:
1.
Stockholder control is not affected.
2.
Tax savings result.
3.
Earnings per share may be higher.
Section 2
Section 2
Non-Current Liabilities
Non-Current Liabilities
Bond Basics
Bond Basics
Bond Basics
Slide SO 5 Prepare the entries for the issuance of bonds and interest expense.
Discount on Bonds Payable:
a.
has a credit balance.
b.is a contra account.
c.
is added to bonds payable on the statement of
financial position.
d.
increases over the term of the bonds.
Question
Issuing Bonds at a Discount
Issuing Bonds at a Discount
Issuing Bonds at a Discount
Long-Term Notes Payable
May be secured by a
mortgage
that pledges title to
specific assets as security for a loan.
Typically, terms require the borrower to make installment
payments over the term of the loan. 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.
Accounting for Long-Term Notes Payable
Accounting for Long-Term Notes Payable
Accounting for Long-Term Notes Payable
Slide
Illustration: Porter Technology Inc. issues a $500,000, 12%, 20-year mortgage note on December 31, 2011. The terms provide for semiannual installment payments of $33,231 (not including real estate taxes and insurance). The installment payment schedule for the first two years is as follows.
SO 7 Describe the accounting for long-term notes payable.
Illustration 10-17
Accounting for Long-Term Notes Payable
Accounting for Long-Term Notes Payable
Accounting for Long-Term Notes Payable
Illustration: Porter Technology Inc. issues a $500,000, 12%, 20-year mortgage note on December 31, 2011. The terms provide for semiannual installment payments of $33,231 (not including real estate taxes and insurance). The installment payment schedule for the first two years is as follows.
Dec. 31 Cash 500,000
Mortgage notes payable 500,000
Jun. 30 Interest expense 30,000
Mortgage notes payable 3,231
Cash 33,231
Accounting for Long-Term Notes Payable
Accounting for Long-Term Notes Payable
Accounting for Long-Term Notes Payable
Slide
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.
Question
SO 7 Describe the accounting for long-term notes payable.
Accounting for Long-Term Notes Payable
Accounting for Long-Term Notes Payable
Accounting for Long-Term Notes Payable
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