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Chapter 14: Non-Current Liabilities (Def: Expected outflow of resources…
Chapter 14: Non-Current Liabilities
Bonds Payable
Issuing Bonds
Bond Indenture-> a bond contract
Represents a promise to pay
Sum of money at designated maturity date
periodic interest / coupons
Type and Ratings of Bond
Secured & Unsecured
Term, Serial, and Callable Bonds
Convertible, Commodity-Backed, Deep-Discount bonds
Registered & Bearer (Coupon) bonds
Income and Revenue bonds
Valuation
investment community values a bond at the present value of its expected future cash flows (coupon + face value)
Bonds issued at Par Value
stated rate = market rate
Bonds issued at a Discount
stated rate < market rate
Bonds issued at a Premium
stated rate > market rate
Effective Interest Method
required procedure for amortization of Bonds Payable
constant percentage of carrying value
Bond issued between Interest Dates
bond investors will pay the issuer the interest accrued from the last interest payment date to the date of issue
Then, on the next semiannual interest payment date, the bond investors will receive the full six-months’ interest payment
Long-Term Notes Payablem
Notes not issued at face value
zero-interest-bearing notes
interest-bearing notes
Special Notes Payable Situations
Mortgage Notes Payable
promissory note secured by a document that pledges title to property as security for the loan
Notes issued for Property, Goods, or Services
Use the fair value of PGS
Choice of Interest
if company can't determine FV of Property, Goods, Services
Notes issued at face value
Special Issues
Extinguishment
With Cash before Maturity
if carrying amount > reacquisition price,
gain
if carrying amount < reacquisition price,
loss
By Exchanging Assets or Securities
Creditor should account for the non-cash assets or equity interest received at their fair value
Debttor
with Modification of Terms
Fair value option
Off-balance-sheet financing
Non-consolidated subsidiary
SPV
Operating Lease
Presentation and Analysisi
Debt to Asset
Times interest Earned
Def: Expected outflow of resources arising from present obligations that are not payable within a year or the operating cycle of the company, whichever is longer
Bondds Payable
Long-term Notes Payable
Mortgages Payable
Pension Liabilities
Lease Liabilities
Usually has various covenants or restrictions