Intermediate accounting 17e by kieso ch14

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Intermediate accounting 17e by kieso ch14

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Intermediate Accounting Seventeenth Edition Kieso ● Weygandt ● Warfield Chapter 14 Long-Term Liabilities This slide deck contains animations Please disable animations if they cause issues with your device Learning Objectives After studying this chapter, you should be able to: Describe the nature of bonds and indicate the accounting for bond issuances Describe the accounting for the extinguishment of debt Explain the accounting for long-term notes payable Indicate how to present and analyze long-term debt Copyright ©2019 John Wiley & Sons, Inc Preview of Chapter 14 Long-Term Liabilities Bonds Payable • Issuing bonds • Types of bonds • Valuation and accounting • Effective-interest method Copyright ©2019 John Wiley & Sons, Inc Preview of Chapter 14 Extinguishment of Debt • Economic substance • Illustration Copyright ©2019 John Wiley & Sons, Inc Preview of Chapter 14 Long-Term Notes Payable • Notes issued at face value • Notes not issued at face value • Special situations • Mortgage notes payable Copyright ©2019 John Wiley & Sons, Inc Preview of Chapter 14 Reporting and Analyzing Liabilities • Fair value option • Off-balance-sheet financing • Presentation and analysis Copyright ©2019 John Wiley & Sons, Inc Learning Objective Describe the Nature of Bonds and Indicate the Accounting for Bond Issuances LO Copyright ©2019 John Wiley & Sons, Inc Bonds Payable No explicit definition of a noncurrent (long-term) liability is provided in current GAAP Many therefore use the following approach: “if does not meet the definition of a current liability, it must be long-term.” LO Copyright ©2019 John Wiley & Sons, Inc Bonds Payable Issuing Bonds • Bond contract known as a bond indenture • Represents a promise to pay a sum of money at designated maturity date, plus periodic interest at a specified rate on the maturity amount (face value) • Paper certificate, typically a $1,000 face value • Interest payments usually made semiannually • Used when amount of capital needed is too large for one lender to supply LO Copyright ©2019 John Wiley & Sons, Inc Bonds Payable Types of Bonds Common types found in practice: • Secured and Unsecured (debenture) bonds • Term, Serial, and Callable bonds • Convertible, Commodity-Backed, Deep-Discount bonds • Registered and Bearer (Coupon) bonds • Income and Revenue bonds LO Copyright ©2019 John Wiley & Sons, Inc 10 Debtor Calculations – Dec 31, 2020 Dec 31, 2020 LO Notes Payable Interest Expense Cash Copyright ©2019 John Wiley & Sons, Inc 356,056 363,944 720,000 88 Debtor Calculations – Dec 31, 2023 Dec 31, 2023 LO Notes Payable Cash Copyright ©2019 John Wiley & Sons, Inc 9,000,000 9,000,000 89 Creditor Calculations Morgan National Bank records bad debt expense as follows: Bad Debt Expense Allowance for Doubtful Accounts LO 2,593,428 Copyright ©2019 John Wiley & Sons, Inc 2,593,428 90 Creditor Calculations Schedule of Interest and Amortization Dec 31, 2020 Cash Allowance for Doubtful Accounts Interest Revenue LO Copyright ©2019 John Wiley & Sons, Inc 720,000 228,789 948,789 91 Creditor Calculations December 31, 2023 Journal Entry The creditor makes a similar entry (except for different amounts debited to Allowance for Doubtful Accounts and credited to Interest Revenue) each year until maturity At maturity, the company makes the following entry Dec 31, 2023 Cash Allowance for Doubtful Accounts Notes Receivable LO 9,000,000 1,500,000 Copyright ©2019 John Wiley & Sons, Inc 10,500,000 92 Modification of Terms Illustration (Example 2—Gain for Debtor) Assume the facts in the previous example except that Morgan National Bank reduces the principal to $7,000,000 (and extends the maturity date to December 31, 2023, and reduces the interest from 12% to 8%) The total future cash flow is now $9,240,000 ($7,000,000 of principal plus $2,240,000 of interest), which is $1,260,000 ($10,500,000 − $9,240,000) less than the prerestructure carrying amount of $10,500,000 Under these circumstances, Resorts Development (debtor) reduces the carrying amount of its payable $1,260,000 and records a gain of $1,260,000 On the other hand, Morgan National Bank (creditor) debits its Bad Debt Expense for $4,350,444 LO Copyright ©2019 John Wiley & Sons, Inc 93 Example 2—Gain for Debtor Morgan (creditor) debits its Bad Debt Expense for $4,350,444 LO LO Copyright ©2019 John Wiley & Sons, Inc 94 Example 2—Gain for Debtor Schedule of Interest and Amortization LO Copyright ©2019 John Wiley & Sons, Inc 95 Example 2—Gain for Debtor Debtor and Creditor Entries LO Copyright ©2019 John Wiley & Sons, Inc 96 Learning Objective Compare the Accounting for Long-Term Liabilities Under GAAP and IFRS LO Copyright ©2019 John Wiley & Sons, Inc 97 IFRS Insights Relevant Facts – Similarities • As indicated in our earlier discussions, GAAP and IFRS have similar liability definitions, and liabilities are classified as current and noncurrent • Much of the accounting for bonds and long-term notes is the same for GAAP and IFRS • Under GAAP and IFRS, bond issue costs are netted against the carrying amount of the bonds LO Copyright ©2019 John Wiley & Sons, Inc 98 IFRS Insights Relevant Facts – Differences • Under GAAP, companies are permitted to use the straight-line method of amortization for bond discount or premium, provided that the amount recorded is not materially different than that resulting from effective-interest amortization However, the effective-interest method is preferred and is generally used Under IFRS, companies must use the effective-interest method • Under IFRS, companies not use premium or discount accounts but instead show the bond at its net amount LO Copyright ©2019 John Wiley & Sons, Inc 99 IFRS Insights Relevant Facts – More Differences • GAAP uses the term troubled-debt restructurings and has developed specific guidelines related to that category of loans IFRS generally assumes that all restructurings will be accounted for as extinguishments of debt • IFRS requires a liability and related expense or cost be recognized when a contract is onerous Under GAAP, losses on onerous contracts are generally not recognized under GAAP unless addressed by an industry- or transaction-specific requirements LO Copyright ©2019 John Wiley & Sons, Inc 100 IFRS Insights On the Horizon The FASB and IASB are currently involved in a project investigating approaches to differentiate between debt and equity instruments The result of this project could change the classify cation of many debt and equity securities LO Copyright ©2019 John Wiley & Sons, Inc 101 Copyright Copyright © 2019 John Wiley & Sons, Inc All rights reserved Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Act without the express written permission of the copyright owner is unlawful Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc The purchaser may make back-up copies for his/her own use only and not for distribution or resale The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein Copyright ©2019 John Wiley & Sons, Inc 102 ... to: Describe the nature of bonds and indicate the accounting for bond issuances Describe the accounting for the extinguishment of debt Explain the accounting for long-term notes payable Indicate... printed Copyright ©2019 John Wiley & Sons, Inc 12 Valuation and Accounting for Bonds Payable Selling Price of a Bond Issue set by the • supply and demand of buyers and sellers, • relative risk,... commensurate with issuer’s risk  LO Rate of interest actually earned by bondholders Copyright ©2019 John Wiley & Sons, Inc 14 Valuation and Accounting for Bonds How you calculate the amount of interest

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Mục lục

  • Intermediate Accounting

  • Learning Objectives

  • Preview of Chapter 14 Long-Term Liabilities

  • Preview of Chapter 14 Extinguishment of Debt

  • Preview of Chapter 14 Long-Term Notes Payable

  • Preview of Chapter 14 Reporting and Analyzing Liabilities

  • Slide 7

  • Bonds Payable

  • Bonds Payable Issuing Bonds

  • Bonds Payable Types of Bonds

  • Types of Bonds

  • Slide 12

  • Slide 13

  • Valuation and Accounting for Bonds Payable Interest Rate

  • Valuation and Accounting for Bonds

  • Valuation and Accounting for Bonds Assume Stated Rate of 8%

  • Valuation and Accounting for Bonds Illustration

  • Slide 18

  • Bonds Issued at Par on Interest Date

  • Bonds Issued at Par on Interest Date Interest

  • Bonds Issued at Discount on Interest Date

  • Bonds Issued at Discount on Interest Date (continued)

  • Bonds Issued at Premium on Interest Date

  • Bonds Issued at Premium on Interest Date (continued)

  • Bonds Issued Between Interest Dates

  • Bonds Issued Between Interest Dates

  • Bonds Issued Between Interest Dates Interest

  • Bonds Issued Between Interest Dates Bonds Issued at 102

  • Slide 29

  • Effective-Interest Method Bonds Issued at a Discount

  • Slide 31

  • Slide 32

  • Illustration 14.6

  • Bonds Issued at a Discount (Jan. 1, 2020)

  • Bonds Issued at a Discount (July 1, 2020)

  • Bonds Issued at a Discount (Dec. 31, 2020)

  • Effective-Interest Method Bonds Issued at a Premium

  • Slide 38

  • Slide 39

  • Bond Premium Amortization Schedule

  • Bonds Issued at a Premium (Jan. 1, 2020)

  • Bonds Issued at a Premium (July 1, 2020)

  • Bonds Issued at a Premium Computation of Interest Expense

  • Bonds Issued at a Premium Accrued Interest

  • Classification of Discount and Premium

  • Slide 46

  • Extinguishment of Debt

  • Extinguishment of Debt Economic Substance

  • Economic Substance

  • Extinguishment of Debt Illustration

  • Illustration

  • Slide 52

  • Long-Term Notes Payable

  • Notes Not Issued at Face Value

  • Notes Not Issued at Face Value

  • Zero-Interest-Bearing Notes

  • Issuance of Zero-Interest-Bearing Note

  • Zero-Interest-Bearing Note Schedule

  • Interest-Bearing Notes

  • Interest-Bearing Note Schedule

  • Slide 61

  • Special Notes Payable Situations Choice of Interest Rates

  • Choice of Interest Rates

  • Choice of Interest Rates Time Diagram

  • Choice of Interest Rates Note Issuance

  • Amortization Schedule

  • Mortgage Notes Payable

  • Slide 68

  • Reporting and Analyzing Liabilities

  • Fair Value Option

  • Fair Value Measurement Fair Value (Net Income)

  • Fair Value Measurement Fair Value (Other Comprehensive Income)

  • Off-Balance-Sheet Financing

  • Off-Balance-Sheet Financing Rationale

  • Presentation of Long-Term Debt

  • Analysis of Long-Term Debt Debt to Assets Ratio

  • Analysis of Long-Term Debt Times Interest Earned

  • Analysis of Long-Term Debt

  • Slide 79

  • Appendix 14A: Troubled-Debt Restructurings

  • Troubled-Debt Restructurings Settlement of Debt

  • Troubled-Debt Restructurings Illustration

  • Illustration Transfer of Assets

  • Illustration

  • Illustration Granting an Equity Interest

  • Modification of Terms

  • Slide 87

  • Debtor Calculations – Dec. 31, 2020

  • Debtor Calculations – Dec. 31, 2023

  • Creditor Calculations

  • Creditor Calculations Schedule of Interest and Amortization

  • Creditor Calculations December 31, 2023 Journal Entry

  • Modification of Terms Illustration (Example 2—Gain for Debtor)

  • Example 2—Gain for Debtor

  • Slide 95

  • Slide 96

  • Slide 97

  • I F R S Insights Relevant Facts – Similarities

  • I F R S Insights Relevant Facts – Differences

  • I F R S Insights Relevant Facts – More Differences

  • I F R S Insights On the Horizon

  • Copyright

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