Accounting 102-Chapter 10 Long-Term Liabilities
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An obligation that will not be satisfied within one year or the current operating cycle.
A bond is a security or financial instrument that allows firms to borrow money and repay the loan over a long period of time.
The principal amount of the bond as stated on the bond certificate. (par value)
Collateral represents the assets that back the bonds in case the issuer cannot make the interest and principal payments and must default on the loan.
Bonds that are not backed by specific collateral.
The certificate indicates specific assets that serve as collateral in case of default.
Bonds that do not all have the same due date; a portion of the bonds comes due each time period.
Bonds that may be redeemed or retired before their specified due date.
Face rate of interest
The rate of interest on the bond certificate.
Alternate term: Stated rate, nominal rate, contract rate, coupon rate.
Market rate of interest
The rate that investors could obtain by investing in other bonds that are similar to the issuing firm's bonds.
Alternate term: Effective rate, bond yield.
Bond issue price
The present value of the annuity of interest payments plus the present value of the principal
The excess of the issue price over the face value of the bonds.
Premium= Issue Price - Face Value
Is an addition to the bonds payable liability on the balance sheet.
The excess of the face value of bonds over the issue price.
Discount = Face Value - Issue Price
Is a deduction to the bonds payable liability and thus is a contra-liability.
Effective interest method of amortization
The process of transferring a portion of the premium or discount to interest expense; this method results in a constant effective interest rate.Alternate term: Interest method.
The face value of a bond plus the amount of unamortized premium or minus the amount of unamortized discount.Alternate term: Book value.
Gain or loss on redemption
The difference between the carrying value and the redemption price at the time bonds are redeemed.
A lease that does not meet any of the four criteria and is not recorded as an asset by the lessee.
A lease that is recorded as an asset by the lessee.
The account used to reconcile the difference between the amount recorded as income tax expense and the amount that is payable as income tax.
A difference that affects the tax records but not the accounting records, or vice versa.
A difference that affects both book and tax records but not in the same time period.Alternate term: Timing difference.
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