2. Financial Accounting, IFRS Edition
Chapter 10
Liabilities
Financial Accounting, IFRS Edition
Weygandt Kimmel Kieso

3. Section 2 Non-Current Liabilities
Bond Basics
Bonds are a form of interest-bearing notes payable.
Three advantages over ordinary shares:
Stockholder control is not affected.
Tax savings result.
Earnings per share may be higher.
SO 4 Explain why bonds are issued, and identify the types of bonds.

4. Question Issuing Bonds at a Discount Discount on Bonds Payable:
has a credit balance.
is a contra account.
is added to bonds payable on the statement of financial position.
increases over the term of the bonds.
SO 5 Prepare the entries for the issuance of bonds and interest expense.

5. Accounting for Long-Term Notes Payable
May be secured by a mortgage that pledges title to specific assets as security for a loan.
Typically, terms require the borrower to make installment payments over the term of the loan. Payment consists of
interest on the unpaid balance of the loan and
a reduction of loan principal.
Companies initially record mortgage notes payable at face value.
SO 7 Describe the accounting for long-term notes payable.

6. Accounting for Long-Term Notes Payable
Illustration: Porter Technology Inc. issues a $500,000, 12%, 20-year mortgage note on December 31, The terms provide for semiannual installment payments of $33,231 (not including real estate taxes and insurance). The installment payment schedule for the first two years is as follows.
Illustration 10-17
SO 7 Describe the accounting for long-term notes payable.

7. Accounting for Long-Term Notes Payable
Illustration: Porter Technology Inc. issues a $500,000, 12%, 20-year mortgage note on December 31, The terms provide for semiannual installment payments of $33,231 (not including real estate taxes and insurance). The installment payment schedule for the first two years is as follows.
Dec. 31 Cash 500,000
Mortgage notes payable 500,000
Jun. 30 Interest expense 30,000
Mortgage notes payable 3,231
Cash 33,231
SO 7 Describe the accounting for long-term notes payable.

8. Question Accounting for Long-Term Notes Payable
Each payment on a mortgage note payable consists of:
interest on the original balance of the loan.
reduction of loan principal only.
interest on the original balance of the loan and reduction of loan principal.
interest on the unpaid balance of the loan and reduction of loan principal.
SO 7 Describe the accounting for long-term notes payable.

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