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Week 3 - ch14&16
Week 3 - ch14&16
NON-CURRENT LIABILITIES
ACCT5170
Corporate Financial Reporting II
Shiheng Wang@ HKUST
14-1
Learning Objectives
1. Describe the accounting and valuation for bonds at date of
issuance.
2. Apply the methods of bond discount and premium amortization.
3. Describe the accounting for the extinguishment of non-current
liabilities.
4. Describe the accounting for the issuance, conversion and
retirement of convertible bonds (chapter 16).
14-2
INTRODUCTION TO BONDS
14-3
Issuing Bonds
14-4
Ratings of Bonds
14-5
ACCOUNTING FOR BONDS
14-6
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).
14-7
Valuation of Bonds Payable
Assume Stated Rate of 8%
6% Premium
8% Par Value
10% Discount
14-8
Bonds Issued at Par
14-9
Bonds Issued at Par
Illustration 14-1
Illustration 14-2
14-10
Bonds Issued at Par
Cash 100,000
Bonds payable 100,000
14-12
Bonds Issued at a Discount
Illustration 14-3
Illustration 14-4
14-13
Bonds Issued at a Discount
14-15
Effective-Interest Method
14-16
Effective-Interest Method
14-17
Effective-Interest Method
14-18
Effective-Interest Method
Illustration 14-7
14-19
Effective-Interest Method
Illustration 14-7
Cash 92,278
Bonds payable 92,278
14-20
Effective-Interest Method
Illustration 14-7
14-23
Effective-Interest Method
Illustration 14-9
14-24
Effective-Interest Method
Illustration 14-9
Cash 108,530
Bonds payable 108,530
14-25
Effective-Interest Method
Illustration 14-9
14-27
Extinguishment of Non-Current Liabilities
14-28
Extinguishment of Non-Current Liabilities
14-29
Extinguishment of Debt
14-30
Extinguishment of Debt
Two years after the issue date on January 1, 2024, Evermaster calls
the entire issue at 101 and cancels it.
Illustration 14-22
14-31
Extinguishment of Non-Current Liabilities
14-32
Extinguishment of Non-Current Liabilities
Illustration: Hamburg Bank loaned €20,000,000 to Bonn Mortgage
Company. Bonn, in turn, invested these monies in residential
apartment buildings. However, because of low occupancy rates, it
cannot meet its loan obligations. Hamburg Bank agrees to accept
from Bonn Mortgage real estate with a fair value of €16,000,000 in full
settlement of the €20,000,000 loan obligation. The real estate has a
carrying value of €21,000,000 on the books of Bonn Mortgage. Bonn
(debtor) records this transaction as follows.
14-34
Extinguishment of Non-Current Liabilities
14-35
Extinguishment of Non-Current Liabilities
14-36
Extinguishment of Non-Current Liabilities
14-37
Extinguishment of Non-Current Liabilities
14-38
Extinguishment of Non-Current Liabilities
Amortization schedule for the new note. Illustration 14-24
14-40
Convertible Debt
+
Privilege of Exchanging it for Shares
(at the holder’s option)
14-41
Convertible Debt
14-42
Convertible Debt
14-43
Convertible Debt
14-44
Convertible Debt
At Time of Issuance
14-45
Convertible Debt
Illustration 16-2
At Time of
Issuance
Illustration 16-3
Illustration 16-4
14-46
Convertible Debt
At Time of Issuance
Illustration 16-3
Illustration 16-4
14-47
Convertible Debt
14-48
Convertible Debt
14-49
Convertible Debt
14-50
Convertible Debt
14-51
Convertible Debt
14-52
Convertible Debt
14-53
Convertible Debt
14-54
Convertible Debt