财务会计概念与应用英文版Lecture10课件.ppt

1、COPYRIGHT 2008 Thomson South-Western,a part of The Thomson Corporation.Thomson,the Star logo,and South-Western are trademarks used herein under license.1Chapter 10Long-Term Debt FinancingAlbrecht,Stice,Stice,Swain2Present Values The value today of$1 to be received or paid in the future,given a speci

2、fied interest rate.$90.91 is the present value of$100 received in one year.$90.91$100One Year Period at 10%ratePresent Value3Future Values The value in the future of$1 to be received or paid today,given a specified interest rate.$100 is the future value in one year of$90.91 paid or invested today.$9

3、0.91$100One Year Period at 10%rateFuture Value4Computing Present Values Using present value tables(Table I):Choose the time period and interest rate used.Multiply the factor by the amount to be received in the future.Period7%8%9%10%12%10.93460.92590.91740.90910.892920.87340.85730.84170.82640.797230.

4、81630.79380.77220.75130.711840.76290.73500.70840.68300.635550.71300.68060.64990.62090.567460.66630.63020.59630.56450.5066$100 X 0.9091=$90.915Computing Future Values Using future value tables(Table III):Choose the time period and interest rate used.Multiply the factor by the amount invested today.Pe

5、riod7%8%9%10%12%11.07001.08001.09001.10001.120021.14491.16641.18811.21001.254431.22501.25971.29501.33101.404941.31081.36051.41161.46411.573551.40261.46931.53861.61051.762361.50071.58691.67711.77161.9738$90.91 X 1.10=$1006Annuities A series of equal amounts to be received or paid at the end of equal

6、time periods.Present values or future values can be computed for annuities.Use number of periods and rate to find appropriate factor.Multiply the factor by the annuity(payment)amount.Present value factor of annuity(Table II)X Payment=Present value7Notes Payable Long-term debt that is paid back at th

7、e end of the loan term.Interest is usually paid throughout the loan period.To record a loan from the bank(2 year 10%loan):Cash.10,000Notes Payable.10,000To record the interest for year 1:Interest Expense.1,000Cash.1,000To record the repayment of the loan and year 2 interest:Notes Payable.10,000Inter

8、est Expense.1,000Cash.11,0008Mortgages A written promise to pay a stated amount of money.Secured by the pledging of certain assets.Liability recorded on the balance sheet is the amount borrowed(which is also the present value of the future payments).A company takes out a 30-year,$100,000 mortgage wi

9、th monthly payments.The interest rate on the mortgage is 8%.The monthly payments are$733.76:Cash.100,000Mortgage Payable.100,0009Mortgage AmortizationPart of each mortgage payment pays off interest due and part of the payment reduces the principal amount due.A schedule can be prepared showing the po

10、rtions of each payment that are principal and interest.InterestPrincipalBalance Payment(Balance X Interest Rate)(Payment Interest)100,000.00 1 733.76 666.67 67.09 99,932.91 2 733.76 666.22 67.54 99,865.37 3 733.76 665.77 67.99 99,797.38 4 733.76 665.32 68.44 99,728.93 5 733.76 664.86 68.90 99,660.03

11、 6 733.76 664.40 69.36 99,590.67 10Mortgage Amortization InterestPrincipalBalance Payment(Balance X Interest Rate)(Payment Interest)100,000.00 1 733.76 666.67 67.09 99,932.91 2 733.76 666.22 67.54 99,865.37 3 733.76 665.77 67.99 99,797.38 4 733.76 665.32 68.44 99,728.93 5 733.76 664.86 68.90 99,660.

12、03 6 733.76 664.40 69.36 99,590.67 Recording the payment for month 5:Interest Expense.664.86Mortgage Payable.68.90Cash.733.7611Leases Capital leases Asset and obligation reported on the balance sheet are the present value of the future lease payments.Yearly interest expense based off of remaining le

13、ase liability balance(like mortgage amortization).Leased equipment for$10,000 a year,discounted at 14%:Leased Equipment.52,161Lease Liability.52,161Record interest expense and first$10,000 payment:Interest Expense.7,303Lease Liability.2,697Cash.10,000(Interest expense=52,161 X 0.14=7,303)12Bonds Bon

14、d A contract between the borrowing company(issuer)and the lender(investor)in which the borrower promises to pay a specified amount of interest at the end of each period for which the bond is outstanding.The principal is then paid back at maturity.Debentures Bonds that have no underlying assets pledg

15、ed as collateral.Secured bonds Bonds that have assets pledged as protection for lenders.Registered bonds The issuing company keeps a record of the names of bondholders.Those registered bondholders are paid interest.Coupon bonds The issuing company has no record of the bondholders.Current bondholders

16、 redeem coupons for interest payments.13More Bond Terms Term bonds Bonds that mature in one single sum on a future specified date.Serial bonds Bonds that mature in a series of installments.Callable bonds Bonds that can be redeemed any time at a specified price.Convertible bonds Bonds that can be con

17、verted to other securities(i.e.preferred stock or common stock)at the option of the bond holder.Zero coupon bonds Bonds issued with no promise of payment.Junk bonds High-risk bonds issued by a company with a lot of outstanding debt or in a weak financial position.14Characteristics of Bonds Face valu

18、e or maturity value The principal amount that will be repaid at maturity.Usually issued in$1,000 increments.Stated rate of interest The amount of interest the company promises to pay.Market rate of interest What the market is paying for bonds of a similar nature.15Bond Issuance The bonds face value

19、and future interest payments(face value X stated rate of interest)are discounted by the market rate of interest to arrive at the issuance price.If the stated rate of interest is LESS than the market rate of interest,the bond is issued at a DISCOUNT.If the stated rate of interest is MORE than the mar

20、ket rate of interest,the bond is issued at a PREMIUM.16Bonds Issued at Face Value Sayer Co.issues$100,000,5-year bonds with a stated rate of interest of 10%.The effective rate(market rate of interest)is also 10%.1.Semiannual interest payment.5,000Present value of an annuity of 10 payments of$1 at 5%

21、(Table II).X 7.721738,6092.Maturity value of bond.100,000Present value of$1 received 10 periodsin the future discounted at 5%(Table I).X 0.613961,3913.Issuance price of bond.100,00017Bonds Issued at a Discount Sayer Co.issues$100,000,5-year bonds with a stated rate of interest of 10%.The effective r

22、ate is 12%.1.Semiannual interest payment.5,000Present value of an annuity of 10 payments of$1 at 6%(Table II).X 7.360136,8002.Maturity value of bond.100,000Present value of$1 received 10 periodsin the future discounted at 6%(Table I).X 0.558455,8403.Issuance price of bond.92,64018Bonds Issued at a P

23、remium Sayer Co.issues$100,000,5-year bonds with a stated rate of interest of 10%.The effective rate is 8%.1.Semiannual interest payment.5,000Present value of an annuity of 10 payments of$1 at 4%(Table II).X 8.110940,5542.Maturity value of bond.100,000Present value of$1 received 10 periodsin the fut

24、ure discounted at 4%(Table I).X 0.675667,5603.Issuance price of bond.108,11419Accounting for Bonds Bonds issued at face value:Issuance of bond:Cash.100,000Bonds Payable.100,000Make semiannual interest payment:Interest Expense.5,000Cash.5,000Retirement of bond:Bonds Payable.100,000Cash.100,00020Early

25、 Retirement of Bonds Bonds are sometimes retired before maturity.The difference between the face value and the price paid to retire the bonds is recognized as a gain or loss.Retirement of Sayer Co.bond at 105:Bonds Payable.100,000Loss on Bond Retirement.5,000Cash.105,00021Debt-Related Financial Rati

26、os Debt ratio Represents the amount of assets financed through debt.Debt-to-equity ratio The number of dollars of debt for every dollar invested by stockholders.Total LiabilitiesTotal AssetsTotal LiabilitiesTotal Stockholders Equity22Times Interest Earned Times Interest Earned Ratio The ratio of the

27、 income that is available for interest payments.Measures how much a cushion has in making its interest payments.The higher the better.Earnings Before Interest and TaxesInterest Expense23Bonds Issued at a Discount or PremiumUsing the Sayer Co.examples,Bonds issued at a discount:Bonds issued at a prem

28、ium:Issuance of bonds:Cash.92,640Discount on Bonds.7,360Bonds Payable.100,000Issuance of bonds:Cash.108,114Premium on Bonds.8,114Bonds Payable.100,00024Straight-Line Amortization The discount or premium needs to be amortized over the life of the bond so the value of the bond is equal to the face val

29、ue at maturity.Straight-line amortization Divide the discount or premium by the number of interest periods and recognize that amount as extra interest expense(for discounts)or less interest expense(for premiums).25Straight-Line Amortization Bonds issued at a discount:The same entry would be made for

30、 each interest payment.A similar entry would be made to amortize a premium,but the premium would be debited and interest expense would be reduced.Discount.7,360Number of semiannual periods.10736Payment of semiannual interest:Interest Expense.5,736Discount on Bonds.736Cash.5,00026Effective Interest A

31、mortization Amortizes a varying amount of discount or premium each period.This amount is the difference between the interest actually incurred and the cash actually paid(like the amortization schedule for the mortgage).Interest actually incurred is the bond carrying value multiplied by the effective

32、 interest rate.27Effective Interest Amortization For Bond issued at premium:Interest IncurredAmortization of PremiumBond Carrying (Bond Carrying Value X(Interest Incurred Value PaymentEffective Interest Rate)Payment)108,114 15,000 4,325 675 107,439 25,000 4,298 702 106,737 35,000 4,269 731 106,006 4

33、5,000 4,240 760 105,246 55,0004,210 790 104,456 4th Payment of semiannual interest:Interest Expense.4,240Premium on Bonds.760Cash.5,00028Retirement of Bonds with a Discount or a Premium Retirement at maturity is the same as at face value because the discount or premium is amortized to zero at maturity.Sayer Co.desires to retire its 5-year bonds issued at a premium after 2 years(4 payments).The bonds are retired at 105:Retirement of Sayer Co.bond at 105:Bonds Payable.100,000Premium on Bonds.5,246Gain on Bond Retirement.246Cash.105,000