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Lecture 4

BADM*1060 Lecture Notes - Lecture 4: Current Liability, Cash Flow Statement, Book Value

3 pages73 viewsSummer 2016

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Howard Leaman

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Week 4 - Accounting II: Reporting and Analyzing Liabilities Part 2
Long-Term Liabilities
Long-Term Liabilities:
- Obligations to be paid after one year
- Includes long-term notes, bonds, and lease obligations
Long-Term Notes Payable:
- Normally Repayable in a series of periodic payments called instruments
- May be secured by specific assets which are commonly referred to as mortgages
Long-Term Notes Payable:
- Installment payments usually take one of two forms:
o Fixed principle payments plus interest (Fixed or Floating Interest)
o Blended principal and Interest payments
Bonds Payable:
- A form of interest-bearing notes payable issued by corporations, universities, and
government agencies
- Sold in small denominations, which makes them attractive to investors
- Secured (Mortgage Bond) Vs. Unsecured (Debenture Bond)
- Convertible bonds (Into Shares)
- Term Bonds
- Serial Bonds
Contractual Interest Rate:
- Stated rate which determines the amount of cash interest the borrower pays and the
investor receives
Market (effective) Interest rate:
- Rate investors demand for loaning funds
Face Value:
- Amount of principal due at maturity
Present Value:
- Value today of
o 1. Bond face value to be received at maturity, and
o 2. Interest payments to be received periodically after considering current
interest rates.
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