INTERMEDIATE FINANCIAL ACCOUNTING 2

Odd Semester Academic Year 2020/2021

Class: FA
Lecturer: Sari Atmini
Student : Demas Taufik Suganda
NON-CURRENT LIABILITIES

1. Non-current liabilities (sometimes referred to as long-term debt) consist of an 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. Bonds payable, long-term notes
payable, mortgages payable, pension liabilities, and lease liabilities are examples of non-
current liabilities..
2. The issuer of bonds makes a formal promise/agreement to pay interest usually every six
months (semiannually) and to pay the principal or maturity amount at a specified date
some years in the future.
Types of Bonds
-Secured and Unsecured Bonds. Secured bonds are backed by a pledge of some sort of
collateral.
-Bond issues that mature on a single date are called term bonds
-issues that mature in installments are called serial bonds
-Callable bonds give the issuer the right to call and retire the bonds prior to maturity
-If bonds are convertible into other securities of the company for a specified time after
issuance, they are convertible bonds
-Commodity-backed bonds (also called asset-linked bonds) are redeemable in measures
of a commodity, such as barrels of oil, tons of coal, or ounces of rare metal.
-Deep-discount bonds, also referred to as zero-interest debenture bonds, are sold at a
discount that provides the buyer's total interest payoff at maturity.
-Registered and Bearer (Coupon) Bonds. Bonds issued in the name of the owner are
registered bonds and require surrender of the certificate and issuance of a new certificate
to complete a sale. A bearer or coupon bond, however, is not recorded in the name of the
owner and may be transferred from one owner to another by mere delivery.
- Revenue bonds, so called because the interest on them is paid from specified revenue
sources, are most frequently issued by airports, school districts, counties, toll-road
authorities, and governmental bodies
Issuing Bonds
A bond arises from a contract known as a bond indenture. A bond represents a promise
to pay (1) a sum of money at a designated maturity date, plus (2) periodic interest at a
specified rate on the maturity amount (face value)
3. The interest rate written in the terms of the bond indenture (and often printed on the bond
certificate) is known as the stated, coupon, or nominal rate.
The effective yield is a measure of the coupon rate, which is the interest rate stated on a
bond and expressed as a percentage of the face value.
4. Evidence of a long-term debt, by which the bond issuer (the borrower) is obliged to pay
interest when due, and repay the principal at maturity, as specified on the face of the bond
certificate
5. When bonds sell at less than face value, it means that investors demand a rate of interest
higher than the stated rate. When bonds sells at more than fave value, it means that
investors demand a rate of interest lower than the stated rate.
6. Ignoring Interest Rate Moves Interest rates and bond prices have an inverse relationship.
Not Noting the Claim Status Not all bonds are created equal. There are senior notes,
which are often backed by collateral (such as equipment) that are given the first claim to
company asset in case of bankruptcy and liquidation Assuming a Company Is Sound Just
because you own a bond or because it is highly regarded in the investment community
doesn't guarantee that you will earn a dividend payment, or that you will ever see the
bond redeemed.
7. The amortization of the premium on bonds payable is the systematic movement of the
aount of premium received when the corporation issued the bonds. The premium was
received because the bonds' stated interest rate was greater than the market interest rate.
he amount of the premium is recorded in a separate bond-related liability account. Over
the life of the bonds the premium amount will be systematically moved to the income
statement as a reduction of Bond Interest Expense.

Example of Amortization of Premium on Bonds Payable

Assume that a corporation issues bonds payable having a maturity value of $1,000,000
and receives a premium of $60,000. The bonds mature in 20 years and there was no
accrued interest at the time the bonds are issued.

The corporation will record the bonds as follows:

 Debit Cash for $1,060,000 (the amount received from investors)

 Credit Bonds Payable for $1,000,000 (the face, par, and maturity amount)
 Credit Premium on Bonds Payable for $60,000 (the amount to be amortized)
Since the premium of $60,000 is related to the interest rates when the bonds were issued,
the amortization of the premium will involve the account Interest Expense or Bond
Interest Expense. Since the bonds mature in 20 years, the $60,000 of premium on bonds
payable will mean an annual amortization of $3,000 ($60,000/20 year). The entry for the
annual amortization will be the following:
 Debit Premium on Bonds Payable for $3,000
 Credit Interest Expense for $3,000
Reducing the balance in the account Premium on Bonds Payable by the same amount each
period is known as the straight-line method of amortization. A more precise method, the
 effective interest rate method of amortization, is preferred when the amount of the
premium is a large amount.

8. Yes. There is something that must be adjusted first in December, more details about the
payment of interest. In the written question, the company must pay bond interest every
March 31 and September 30, but there must be records every 31 December. For example
the interest payment on September 30 is 24 million (per month 2 million), the next
payment will be made in March. So the company will pass December so they have to
make adjustments first. Interest payable from September to December must be
recognized first by writing down the interest expense on the interest payable amounting
to 6 million
9. In my opinion, bonds would be better if they were issued on the interest date. This is so
that companies that buy bonds can be better prepared to pay the interest. If the company
that issued the bond demanded interest payments from the company that bought their
bond, but not on the interest date, they are more likely to be unable to pay it.
10. When a company issues bonds at a premium or discount, the amount of bond interest
expense recorded each period differs from bond interest payments. . it will amortize the
discount using the straight-line method meaning we will take the total amount of the
discount and divide by the total number of interest payments.
11. A company may add to the attractiveness of its bonds by giving the bondholders the
option to convert the bonds to shares of the issuer’s common stock. In accounting for the
conversions of convertible bonds, a company treats the carrying value of bonds surrendered
as the capital contributed for shares issued.
12. . It is sometimes desirable to reduce bond indebtedness in order to take advantage of
lower prevailing interest rates. Also the company may not want to make a very large cash
outlay all at once when the bonds mature. Bond indebtedness may be reduced by either
issuing bonds callable after a certain date and then calling some or all of them, or by
purchasing bonds on the open market and then retiring them. When a portion of bonds
outstanding is going to be retired, it is necessary for the accountant to make sure any
corresponding discount or premium is properly amortized. When the bonds are extinguished,
any gain or loss should be reported in income
13. The debt restructuring process typically involves reducing the interest rates on loans,
extending the dates when the company’s liabilities are due to be paid, or both. These steps
improve the firm’s chances of paying back the obligations. Creditors understand that they
would receive even less should the company be forced into bankruptcy or liquidation.

Debt restructuring can be a win-win for both entities because the business avoids bankruptcy,
and the lenders typically receive more than what they would through a bankruptcy
proceeding.