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PREVIEW OF CHAPTER 14
Intermediate Accounting
IFRS 2nd Edition
Kieso, Weygandt, and Warfield
14-2
14 Non-Current Liabilities
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Examples:
► Bonds payable ► Pension liabilities
► Long-term notes payable ► Lease liabilities
► Mortgages payable
Long-term debt has various
covenants or restrictions.
14-4 LO 1
Issuing Bonds
14-5 LO 1
14 Non-Current Liabilities
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Describe the formal procedures 5. Explain the accounting for long-term
associated with issuing long-term debt. notes payable.
3. Describe the accounting valuation for 7. Describe the accounting for the fair
bonds at date of issuance. value option.
14-7 LO 2
Types and Ratings of Bonds
14-8 LO 2
14 Non-Current Liabilities
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Describe the formal procedures 5. Explain the accounting for long-term
associated with issuing long-term debt. notes payable.
2. Identify various types of bond issues. 6. Describe the accounting for the
extinguishment of non-current liabilities.
3. Describe the accounting
valuation for bonds at date of 7. Describe the accounting for the fair
value option.
issuance.
8. Explain the reporting of off-balance-
4. Apply the methods of bond discount
sheet financing arrangements.
and premium amortization.
9. Indicate how to present and analyze
14-9
non-current liabilities.
Valuation of Bonds Payable
14-10 LO 3
Valuation of Bonds Payable
14-11 LO 3
Valuation of Bonds Payable
Interest Rate
Stated, coupon, or nominal rate = Rate written in the
terms of the bond indenture.
► Bond issuer sets this rate.
► Stated as a percentage of bond face value (par).
14-12 LO 3
Valuation of Bonds Payable
14-13 LO 3
Valuation of Bonds Payable
Assume Stated Rate of 8%
6% Premium
8% Par Value
10% Discount
14-14 LO 3
Bonds Issued at Par
ILLUSTRATION 14-1
Time Diagram for Bonds
Issued at Par
14-15 LO 3
Bonds Issued at Par ILLUSTRATION 14-1
Time Diagram for Bonds
Issued at Par
ILLUSTRATION 14-2
Present Value
Computation of
Bond Selling at Par
14-16 LO 3
Bonds Issued at Par
Cash 100,000
Bonds payable 100,000
ILLUSTRATION 14-3
Time Diagram for Bonds
Issued at a Discount
14-18 LO 3
Bonds Issued at a Discount ILLUSTRATION 14-3
Time Diagram for Bonds
Issued at a Discount
ILLUSTRATION 14-4
Present Value
Computation of
Bond Selling at
Discount
14-19 LO 3
Bonds Issued at a Discount
Journal entry on date of issue, Jan. 1, 2015.
Cash 92,608
Bonds payable 92,608
14-21 LO 3
14 Non-Current Liabilities
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Describe the formal procedures 5. Explain the accounting for long-term
associated with issuing long-term debt. notes payable.
2. Identify various types of bond issues. 6. Describe the accounting for the
3. Describe the accounting valuation for extinguishment of non-current liabilities.
bonds at date of issuance. 7. Describe the accounting for the fair
value option.
4. Apply the methods of bond
discount and premium 8. Explain the reporting of off-balance-
sheet financing arrangements.
amortization.
9. Indicate how to present and analyze
14-22
non-current liabilities.
Effective-Interest Method
14-23 LO 4
Effective-Interest Method
ILLUSTRATION 14-5
Bond Discount and Premium
Amortization Computation
14-24 LO 4
Effective-Interest Method
ILLUSTRATION 14-6
Computation of Discount on Bonds Payable
14-25 LO 4
ILLUSTRATION 14-7
Bond Discount
Amortization Schedule
14-26
Effective-Interest Method ILLUSTRATION 14-7
Bond Discount
Amortization Schedule
14-27 LO 4
Effective-Interest Method ILLUSTRATION 14-7
Bond Discount
Amortization Schedule
14-28 LO 4
Effective-Interest Method ILLUSTRATION 14-7
Bond Discount
Amortization Schedule
14-29 LO 4
Effective-Interest Method
ILLUSTRATION 14-8
Computation of Premium on Bonds Payable
14-30 LO 4
ILLUSTRATION 14-9
Bond Premium
Amortization Schedule
14-31
Effective-Interest Method ILLUSTRATION 14-9
Bond Premium
Amortization Schedule
14-32 LO 4
Effective-Interest Method ILLUSTRATION 14-9
Bond Premium
Amortization Schedule
14-33 LO 4
Effective-Interest Method
Accrued Interest
What happens if Evermaster prepares financial statements at the
end of February 2015? In this case, the company prorates the
premium by the appropriate number of months to arrive at the
proper interest expense, as follows.
ILLUSTRATION 14-10
Computation of Interest
Expense
14-34 LO 4
Effective-Interest Method
14-35 LO 4
Effective-Interest Method
14-36 LO 4
Effective-Interest Method
14-37 LO 4
Effective-Interest Method
14-38 LO 4
Effective-Interest Method
14-39 LO 4
Effective-Interest Method
ILLUSTRATION 14-12
Partial Period Interest
Amortization
14-40 LO 4
Effective-Interest Method
ILLUSTRATION 14-13
Partial Period Interest
Amortization
14-41 LO 4
Effective-Interest Method
14-42 LO 4
14 Non-Current Liabilities
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Describe the formal procedures 6. Describe the accounting for the
associated with issuing long-term debt. extinguishment of non-current liabilities.
2. Identify various types of bond issues. 7. Describe the accounting for the fair
3. Describe the accounting valuation for value option.
bonds at date of issuance. 8. Explain the reporting of off-balance-
4. Apply the methods of bond discount sheet financing arrangements.
and premium amortization. 9. Indicate how to present and analyze
5. Explain the accounting for long-term non-current liabilities.
notes payable.
14-43
LONG-TERM NOTES PAYABLE
14-44 LO 5
Notes Issued at Face Value
14-45 LO 5
Notes Not Issued at Face Value
Zero-Interest-Bearing Notes
Issuing company records the difference between the face
amount and the present value (cash received) as
a discount and
amortizes that amount to interest expense over the life
of the note.
14-46 LO 5
Zero-Interest-Bearing Notes
ILLUSTRATION 14-14
Time Diagram for Zero-Interest Note
14-47 LO 5
Zero-Interest-Bearing Notes
14-48 LO 5
Zero-Interest-Bearing Notes
ILLUSTRATION 14-15
Schedule of Note
Discount Amortization
14-49 LO 5
Zero-Interest-Bearing Notes
ILLUSTRATION 14-15
Schedule of Note
Discount Amortization
ILLUSTRATION 7-16
Computation of
Present Value—
Effective Rate
Different from
Stated Rate
14-51 LO 5
Interest-Bearing Notes
14-52 LO 5
Interest-Bearing Notes
ILLUSTRATION 14-16
Schedule of Note
Discount Amortization
14-53 LO 5
Interest-Bearing Notes
ILLUSTRATION 14-16
Schedule of Note
Discount Amortization
14-54 LO 5
Special Notes Payable Situations
14-55 LO 5
Special Notes Payable Situations
14-57 LO 5
Special Notes Payable Situations ILLUSTRATION 14-18
Time Diagram for
Interest-Bearing Note
ILLUSTRATION 14-19
Computation of Imputed Fair Value and Note Discount
14-58 LO 5
Special Notes Payable Situations
ILLUSTRATION 14-19
Computation of Imputed Fair Value and Note Discount
14-59 LO 5
Special Notes Payable Situations
ILLUSTRATION 14-20
Schedule of Discount
Amortization Using
Imputed Interest Rate
14-60 LO 5
Special Notes Payable Situations
ILLUSTRATION 14-20
Schedule of Discount
Amortization Using
Imputed Interest Rate
14-61 LO 5
Mortgage Notes Payable
14-62 LO 5
14 Non-Current Liabilities
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Describe the formal procedures 6. Describe the accounting for the
associated with issuing long-term debt. extinguishment of non-current
2. Identify various types of bond issues. liabilities.
3. Describe the accounting valuation for 7. Describe the accounting for the fair
bonds at date of issuance. value option.
4. Apply the methods of bond discount 8. Explain the reporting of off-balance-
and premium amortization. sheet financing arrangements.
5. Explain the accounting for long-term 9. Indicate how to present and analyze
notes payable. non-current liabilities.
14-63
SPECIAL ISSUES RELATED TO NON-
CURRENT LIABILITIES
14-64 LO 6
Extinguishment of Non-Current Liabilities
14-65 LO 6
Extinguishment with Cash before Maturity
14-66 LO 6
Extinguishment with Cash before Maturity
14-67 LO 6
Extinguishment of Non-Current Liabilities
14-68 LO 6
Exchanging Assets
14-69 LO 6
Exchanging Securities
14-70 LO 6
Extinguishment with Modification of Terms
14-71 LO 6
Modification of Terms
14-72 LO 6
Modification of Terms
ILLUSTRATION 14-23
Fair Value of Restructured Note
14-73 LO 6
Modification of Terms
14-74 LO 6
Modification of Terms
ILLUSTRATION 14-24
Schedule of Interest and Amortization
after Debt Modification
14-75 LO 6
14 Non-Current Liabilities
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Describe the formal procedures 6. Describe the accounting for the
associated with issuing long-term debt. extinguishment of non-current liabilities.
2. Identify various types of bond issues. 7. Describe the accounting for the
3. Describe the accounting valuation for fair value option.
bonds at date of issuance. 8. Explain the reporting of off-balance-
4. Apply the methods of bond discount sheet financing arrangements.
and premium amortization. 9. Indicate how to present and analyze
5. Explain the accounting for long-term non-current liabilities.
notes payable.
14-76
Fair Value Option
14-77 LO 7
Fair Value Option
14-78 LO 7
14 Non-Current Liabilities
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Describe the formal procedures 6. Describe the accounting for the
associated with issuing long-term debt. extinguishment of non-current liabilities.
2. Identify various types of bond issues. 7. Describe the accounting for the fair
3. Describe the accounting valuation for value option.
bonds at date of issuance. 8. Explain the reporting of off-
4. Apply the methods of bond discount balance-sheet financing
and premium amortization. arrangements.
5. Explain the accounting for long-term 9. Indicate how to present and analyze
notes payable. non-current liabilities.
14-79
Off-Balance-Sheet Financing
Different Forms:
► Non-Consolidated Subsidiary
► Special Purpose Entity (SPE)
► Operating Leases
14-80 LO 8
14 Non-Current Liabilities
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Describe the formal procedures 6. Describe the accounting for the
associated with issuing long-term debt. extinguishment of non-current liabilities.
2. Identify various types of bond issues. 7. Describe the accounting for the fair
3. Describe the accounting valuation for value option.
bonds at date of issuance. 8. Explain the reporting of off-balance-
4. Apply the methods of bond discount sheet financing arrangements.
and premium amortization. 9. Indicate how to present and
5. Explain the accounting for long-term analyze non-current liabilities.
notes payable.
14-81
Presentation and Analysis
14-82 LO 9
Presentation and Analysis
Total Liabilities
Debt to Assets =
Total Assets
14-83 LO 9
Presentation and Analysis
14-84 LO 9
Presentation and Analysis
ILLUSTRATION 14-28
Computation of Long-Term
Debt Ratios for Novartis
14-85 LO 9