ch07 Long-Term Liabilities(评估用).ppt

1、2020/7/19,1,Long-Term Liabilities,Chapter 7,2020/7/19,2,Bonds: An Introduction,Objective 1,2020/7/19,3,1.Bonds,Bonds are groups of notes payable issued to multiple lenders called bondholders.,Bond fundamentals,Principal amount,Maturity value Par value,Maturity date,Stated interest rate,2020/7/19,4,2

2、.Types of Bonds,Term bonds,Serial bonds,Secured or mortgage bonds,Debenture bonds,Mature at a specified date,Mature in installments,2020/7/19,5,3.Bond Prices,Issuing at a premium,Issuing price above maturity value,Issuing at a discount,Issuing price below maturity value,2020/7/19,6,4.Bond Interest R

3、ates,Two interest rates work together to set the price of bond:,Stated interest rate,Printed on bond and doesnt change,Market interest rate,The rate investors demand for loaning money,2020/7/19,7,4.Bond Interest Rates,Stated interest rate,Market interest rate,Issue price of bonds payable,8%,10%,8%,6

4、%,8%,8%,2020/7/19,8,Account for bonds payable Transactions.,Objective 2,2020/7/19,9,Issuing at a premium,Issuing price above par value,Issuing at a discount,Issuing price below par value,Review,Stated interest rate Market interest rate,Stated interest rate Market interest rate,2020/7/19,10,1.Issuing

5、 Bonds Payable example,(1) Issuing at par value,On January 1, Corp. issued $1,000,000 of 10%, 10-year bonds. paid interest on July 1,2020/7/19,11,1.Issuing Bonds Payable example,2020/7/19,12,A 10-year, $1,000,000 bond issue is sold by Corp. at 99 on January 1,2001 The contract rate of interest is 10

6、% (20 periods).,1.Issuing Bonds Payable example,(2)Issuing at a discount,2020/7/19,13,1.Issuing Bonds Payable example,(3)Issuing at a premium,Corp. sold a 10%, 10-year (20 periods), $1,000,000 bond issue at a price of $ 101 on Jan. 1,2001,2020/7/19,14,2.Straight-Line Amortization,This method amortiz

7、es the bond discount and premium by dividing it into equal amounts for each interest period.,2020/7/19,15,3.Straight-Line Amortizationof Bond Discount ,July 1,2020/7/19,16,3.Straight-Line Amortizationof Bond Discount,2020/7/19,17,4.Straight-Line Amortizationof Bond Premium,2020/7/19,18,Jan. 1,2011,4

8、.Straight-Line Amortizationof Bond Premium,2020/7/19,19,Notice,Issuing at a discount:,Interest Expense,=,Stated interest,+,Amortization of discount,Issuing at a premium:,Interest Expense,=,Stated interest,-,Amortization of premium,2020/7/19,20,Measure interest expense by the effective-interest metho

9、d.,Objective 3,2020/7/19,21,1.Effective-Interest Methodof Amortization,The effective-interest method keeps interest expense at the same percentage over any bonds life.,2020/7/19,22,2.Effective-Interest Method:Bond Discount,Assume that Corp. issues $400,000 of its 10% bonds at a price of $371,163, at

10、 a time when the market rate of interest is 12%. These bonds mature in five years and pay interest annually.,2020/7/19,23,2.Effective-Interest Method:Bond Discount,2020/7/19,24,2.Effective-Interest Method:Bond Discount,Interest expense at the end of period one?,Interest payment at the end of period

11、one?,End of Period,Carrying Value,Interest Expense,Cash Paid,Amortization,Issue,371,163,2020/7/19,26,2.Effective-Interest Method:Bond Discount,2020/7/19,27,3.Effective-Interest Method:Bond Premium,Assume the Corp. issues a $400,000, 5-year, 10% bond to yield 8%, at a premium of $31,940.,2020/7/19,28

12、,Interest expense at the end of period one?,Interest payment at the end of period one?,3.Effective-Interest Method:Bond Premium,End of Period,Carrying Value,Interest Expense,Cash Paid,Amortization,2020/7/19,30,3.Effective-Interest Method:Bond Premium,2020/7/19,31,Account for retirement and conversio

13、n of bonds payable.,Objective 4,2020/7/19,32,1.Retirement of Bonds Payable,To retire a bond early, the issuer can . purchase the bonds in the open market, or exercise a call option. The journal entry is the same in either case.,2020/7/19,33,Retirement of Bonds Payable Example,$500,000 of 12% bonds w

14、ith an unamortized premium of $20,000 are purchased for $498,000 and retired.,2020/7/19,34,2.Convertible Bonds and Notes,Convertible bonds and notes give the holder the option of exchanging the bond for a specified number of shares of common stock. If a bond issue or a note payable is converted into

15、 common stock, stockholders equity is increased by the carrying amount of the bonds converted.,2020/7/19,35,Show the advantages and disadvantages of borrowing.,Objective 5,2020/7/19,36,Equity financing creates no liabilities and no interest burden. It is less risky to the issuing corporation. It may

16、 dilute ownership interest of existing shareholders.,Debt financing does not dilute control. It usually results in higher earnings per share. It reduces total net income and lead to a cash shortage or even bankruptcy.,Issuing Bonds versus Stock,2020/7/19,37,Advantage of Issuing Bondsversus Stock Exa

17、mple,Suppose that Granite Corp., with net income of $300,000 and with 100,000 shares of common stock outstanding, needs $500,000 for expansion. Money can be borrowed at 10% interest. The income tax rate is 40%.,2020/7/19,38,Advantage of Issuing Bondsversus Stock Example,50,000 shares of common stock

18、 can be issued for $500,000. Management believes that the new cash can be invested in operations to earn income of $200,000 before interest and taxes. Should the company borrow the money or issue additional common stock?,2020/7/19,39,Advantage of Issuing Bondsversus Stock Example,Borrow $500,000,Expected net income on the new project