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    Describe bonds payable Large company issue bonds to public to raise money company pays interest (usually semi-annually) to bondholders. Term bonds Serial bonds Secured bonds Debenture quoted as a percent of maturity value a $1,000 bond quoted a price of 101. Would sell for $1,015 money earns income over time Investors will pay less than $1,000 now to receive $1,000 in the future.

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    8e ch10 Stud PDF

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    61 views5 pages
    Describe bonds payable Large company issue bonds to public to raise money company pays interest (usually semi-annually) to bondholders. Term bonds Serial bonds Secured bonds Debenture quoted as a percent of maturity value a $1,000 bond quoted a price of 101. Would sell for $1,015 money earns income over time Investors will pay less than $1,000 now to receive $1,000 in the future.

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    Describe bonds payable Large company issue bonds to public to raise money company pays interest (usually semi-annually) to bondholders. Term bonds Serial bonds Secured bonds Debenture quoted as a percent of maturity value a $1,000 bond quoted a price of 101. Would sell for $1,015 money earns income over time Investors will pay less than $1,000 now to receive $1,000 in the future.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    61 views5 pages

    8e ch10 Stud PDF

    Uploaded by

    flowerkm
    Describe bonds payable Large company issue bonds to public to raise money company pays interest (usually semi-annually) to bondholders. Term bonds Serial bonds Secured bonds Debenture quoted as a percent of maturity value a $1,000 bond quoted a price of 101. Would sell for $1,015 money earns income over time Investors will pay less than $1,000 now to receive $1,000 in the future.

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    Ch.

    10
    Long-Term

    Liabilities
    Describe bonds payable

    
    
    
    

    Large company issue bonds to public to raise


    money
    Company pays interest (usually semi-annually) to
    bondholders

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    Term bonds
    Serial bonds
    Secured bonds
    Debenture

    Quoted as a percent of maturity value

    
    

    A $1,000 bond quoted a price of


    101.5 would sell for $1,015

    Money earns income over time


    Investors will pay less than $1,000 now to receive
    $1,000 in the future
    2009

    A $1,000 bond quoted a price of


    89.75 would sell for $897.50

    Present value:
    Todays price
    $750

    2012

    Present value is always

    less than future value

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    Stated interest rate

    Stated
    interest
    rate

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    Market
    interest
    rate

    Issue price of bonds payable

    9%

    Maturity value

    9%

    <

    10%

    Discount (below maturity value)

    9%

    >

    8%

    Premium (above maturity value)


    Copyright (c) 2009 Prentice Hall. All rights reserved.

    Measure interest expense on bonds using the


    straight-line amortization method

    GENERAL JOURNAL

    Issue
    date

    DESCRIPTION

    GENERAL JOURNAL
    DEBIT

    CREDIT

    DATE

    Cash

    DESCRIPTION

    DEBIT

    CREDIT

    Maturity Bond payable


    date
    Cash

    Bonds payable
    To record issuance of 8% bonds at maturity value

    Int.
    pmt
    dates

    Market interest rate

    9%

    DATE

    Future value:
    Maturity value
    $1,000

    To record payment of bonds at maturity

    Interest expense
    Cash
    To record semi-annual interest payment

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    11

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    12

    Long-term liabilities

    GENERAL JOURNAL
    DATE

    DESCRIPTION

    DEBIT

    CREDIT

    Issue Cash
    date Discount on bonds payable

    Bonds payable

    $100,000

    Less: Discount on bonds payable

    ( $2,000) $98,000

    Bonds payable
    To record issuance of $100,000, 10-year, 8% bonds at 98

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    13

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    GENERAL JOURNAL
    DATE

    DESCRIPTION

    GENERAL JOURNAL
    DEBIT

    Int. pmt Interest expense


    date
    Discount on bonds payable

    14

    CREDIT

    DATE

    4,100

    DEBIT

    CREDIT

    Issue Cash
    date
    Premium on bonds payable

    100

    Cash

    DESCRIPTION

    4,000

    Bonds payable
    To record issuance of $100,000, 10-year, 8% bonds at 98

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    15

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    Long-term liabilities

    16

    GENERAL JOURNAL

    Bonds payable

    $100,000

    Plus: Premium on bonds payable

    DATE

    DESCRIPTION

    DEBIT

    CREDIT

    Int. pmt Interest expense


    date Premium on bonds payable

    $4,000 $104,000

    Cash

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    17

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    18

    Bonds payable

    Premium

    $100,000

    $200

    Interest payments seldom occur at year-end


    Interest must be accrued

    $4,000
    GENERAL JOURNAL
    DATE

    $3,800

    12

    DESCRIPTION

    DEBIT

    CREDIT

    31 Interest expense
    Discount on bonds payable
    Interest payable
    (100,000 x 8% x 3/12)

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    19

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    The following interest payment entry will take into


    account the adjusting entry previously made

    20

    $100,000 x 8% x 6/12 =

    $4,000

    GENERAL JOURNAL
    DATE

    DESCRIPTION

    DEBIT

    CREDIT

    31 Interest payable

    $2,000

    $2,000

    (100,000 x 8% x 3/12)

    (100,000 x 8% x 3/12)

    Interest expense
    Discount on bonds payable
    Cash
    (100,000 x 8% x 1/12)

    January 1:
    bond date

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    21

    April 1:
    issue date

    June 20:
    1st interest
    payment

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    GENERAL JOURNAL
    DATE

    DESCRIPTION

    DEBIT

    CREDIT

    Cash
    Bonds payable
    Interest payable

    Report liabilities on the balance sheet


    6

    30

    Interest expense
    Interest payable
    Cash

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    23

    22

    Any Company
    Classified Balance Sheet (partial)
    December 30, 2010
    Liabilities
    Current liabilities:
    Accounts payable
    7,200
    Salaries payable
    1,500
    Unearned revenue
    400
    FICA tax payable
    100
    Employee income tax payable
    150
    Interest payable
    2,100
    Current portion of long-term debt
    5,000
    Total current liabilities

    Compare issuing bonds to issuing stock


    16,450

    Long-term liabilities:
    Note payable
    Bonds payable, net of discount

    50,000
    98,200

    Total long-term liabilities

    148,200

    Total liabilities

    164,650
    Copyright (c) 2009 Prentice Hall. All rights reserved.

    Issuing bonds
    

    
    

    Must pay interest and


    principal to bondholders
    Reduces net income
    Can increase earnings
    per share

    25

    Issuing stock
    

    Does not have to be paid


    off
    Does not affect net
    income
    Increases number of
    shares outstanding

    Copyright (c) 2009 Prentice Hall. All rights reserved.

    27

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