Chapter 14 - Financial Liabilities

Chapter 14 - Financial Liabilities

1. Notes Payable

   • Long-term Notes Payable
     • Term loan
       • Requires the borrower to pay interest each period with the principle due only at maturity
     • Installment Loans
       • Requires fixed payment each period that includes both principal and interest
       • Need to use the time value of money
       • Includes amortization table
     • Stated Rate Less than Market Rate

2. Bond Payable

   • Types of Bond
     • Secured Bonds
     • Debenture Bonds
     • Serial Bonds
     • Term Bonds
     • Callable Bond
     • Convertible Bonds
     • Bonds with stock warrants attached
   • Bong Pricing
     • Premium
     • Discount
     • At par
   • The Effective interest Rate Method of Amoritization
     • @ Premium
       • 1. Record the increase in cash and bond payable account when issuing the bonds
       • 2. Credit the bond premium
       • 3. Record the interest expense for every interest payment and also reduces the bond premium account
     • Bond issue cost
       • Net Carrying Value of the Bond = Face Value of Bond + Unamortized Premium - Unamortized Discount - Unamortized Bond Issued