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 Chapter 10

Liabilities

Financial Accounting, IFRS Edition

Weygandt Kimmel Kieso
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 Section 2 Non-Current Liabilities
Bond
Bond Basics
Basics

Bonds are a form of interest-bearing notes payable.

Three advantages over ordinary shares:

1. Stockholder control is not affected.
2. Tax savings result.
3. Earnings per share may be higher.

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SO 4 Explain why bonds are issued, and identify the types of bonds.
 Issuing
Issuing Bonds
Bonds at
at aa Discount
Discount
Question

Discount on Bonds Payable:

a. has a credit balance.
b. is a contra account.
c. is added to bonds payable on the statement of
financial position.
d. increases over the term of the bonds.

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SO 5 Prepare the entries for the issuance of bonds and interest expense.
 Accounting
Accounting for
for Long-Term
Long-Term Notes
Notes Payable
Payable

Long-Term Notes Payable

May be secured by a mortgage that pledges title to
specific assets as security for a loan.

Typically, terms require the borrower to make installment

payments over the term of the loan. Payment consists of
1. interest on the unpaid balance of the loan and
2. a reduction of loan principal.

Companies initially record mortgage notes payable at

face value.

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SO 7 Describe the accounting for long-term notes payable.
 Accounting
Accounting for
for Long-Term
Long-Term Notes
Notes Payable
Payable
Illustration: Porter Technology Inc. issues a $500,000, 12%, 20-
year mortgage note on December 31, 2011. The terms provide for
semiannual installment payments of $33,231 (not including real
estate taxes and insurance). The installment payment schedule for
the first two years is as follows.
Illustration 10-17

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SO 7 Describe the accounting for long-term notes payable.
 Accounting
Accounting for
for Long-Term
Long-Term Notes
Notes Payable
Payable
Illustration: Porter Technology Inc. issues a $500,000, 12%, 20-
year mortgage note on December 31, 2011. The terms provide for
semiannual installment payments of $33,231 (not including real
estate taxes and insurance). The installment payment schedule for
the first two years is as follows.

Dec. 31 Cash 500,000

Mortgage notes payable 500,000

Jun. 30 Interest expense 30,000

Mortgage notes payable 3,231
Cash 33,231

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SO 7 Describe the accounting for long-term notes payable.
 Accounting
Accounting for
for Long-Term
Long-Term Notes
Notes Payable
Payable
Question

Each payment on a mortgage note payable consists of:

a. interest on the original balance of the loan.
b. reduction of loan principal only.
c. interest on the original balance of the loan and
reduction of loan principal.
d. interest on the unpaid balance of the loan and
reduction of loan principal.

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SO 7 Describe the accounting for long-term notes payable.
 Copyright
Copyright

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