Long Term Liabilities

Question 2

Long Term Liabilities Overview

Answer 2

*Mandatorily Redeemable= liability prefer stock
*Probable future sacrifices of economic benefits associated with present obligations.
*Not payable within current operating cycle or reporting year.

Question 3

Noninterest Bearing Note

Answer 3

Interest is not accrued ; instead the discount is amortized to interest expense each period.
*No interest payable

Question 4

Bond Sinking Funds

Answer 4

*Accumulate funds to retire bonds
*Noncurrent asset
*Interest & Dividends added to balance and reported as income.

Question 5

Present Value of Bond Principal & Interest Payments

Answer 5

*PV of Bond Principal +**PV Of Interest Payments=
PV of Bond Value

*PV Bond principal= FV X Market% on single sum PV factor
**PV interest payment=FV X Stated % X Market % annuity PV
(coupon payment) factor

Question 6

Bond Premium Amortization

Answer 6

“Cash Interest Payment” “Interest Income”

Bond Face Value Bond Carrying Value
X (-) X
Stated Coupon Rate Effective Interest Rate

Question 7

Interest Expense

Answer 7

Bond Carrying Value X Effective % X Time Period

Question 8

Gain or Loss on Bond Redemption

Answer 8

Gain or Loss on Bond Redemption

Step1:
Bonds Payable(Face Value)
+Unamortized Bond Premium
or
- Unamortized Bond Discount
-Unamortized Bond Issue cost
=Bond Carrying Value

Step2:
Bond Carrying Value
- Cash Paid to Redeem Bonds
=Gain or loss on bond redemption

Gain= Carrying Value > Cash paid
Loss= Carrying Value < Cash paid