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30 Cards in this Set
- Front
- Back
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Due within one year of the balance sheet date
Due beyond one year |
Balance Sheet Classifications
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Bonds payable
Notes payable Leases Deferred taxes |
Long-Term Liabilities
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Long-term borrowing arrangement
Interest paid at stated rate and times Principal repaid at maturity date |
Bonds
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entire principal due on a specific single date
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term
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backed only by general creditworthiness of issue
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debentures
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principal repaid in installments over time
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serial
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backed by specific assets in event of default
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collateralized
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Convertible into common stock
Callable / Redeemable may be retired before maturity date |
Bond Features
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Bonds Sold at Face Value
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Cash 10,000
BondsPayable 10,000 |
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the rate specified on the bond certificate
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face rate
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the rate that investors could obtain by investing in other bonds similar to the issuing firm’s bonds
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market rate
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Recording Bond Discounts
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Cash 9,366
Discount on Bonds Payable 634 Bonds Payable 10,000 |
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Balance Sheet Presentation of Bond Discount
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Long-term liabilities:
Bonds payable $10,000 Less:Discount on bonds payable 634 $ 9,366 |
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Recording Bond Premiums
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Cash 10,692
BondsPayable 10,000 Premium on Bonds Payable 692 |
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Balance Sheet Presentation of Bond Premium
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Long-term liabilities:
Bonds payable $10,000 Plus: Premium on bonds payable 692 $10,692 |
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reduces interest expense =
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premium
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increases interest expense =
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discount
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Reasons for early redemption:
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Excess cash
Changing interest rates |
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Carrying Value – Redemption Price =
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Gain
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Redemption Price – Carrying Value =
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Loss
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Contractual arrangement
Grants right to use asset in exchange for payments Form of financing |
Leases
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Record as asset and corresponding liability (as if purchased through borrowings)
Depreciate asset over lease term Separate payments into principal and interest components using the effective interest method |
Capital Lease
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Four Criteria for Lease Capitalization:
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Lease meets one or more:
Transfers ownership of property Contains a bargain-purchase option Term is > 75% of property’s life Present value of payments is > 90% of property’s fair market value |
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Record as rent (lease) expense each period
Disclose future lease obligations in financial statement notes |
Operating Leases
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Debt to Equity Ratio
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Total Liabilities / Total Stockholders' Equity
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Times Interest Earned Ratio
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Income Before Interest and Tax / Interest Expense
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Debt Service Coverage Ratio
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Cash Flow from Operations Before Interest and Tax / Interest and Principal Payments
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Used to reconcile the differences between the accounting for book purposes and for tax purposes
Should reflect temporary differences but not permanent differences |
Deferred Tax
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affects the tax records but not the accounting records, or vice versa
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permanent difference
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affects both book and tax records but not in the same
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temporary difference
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