Textbook Notes (368,314)
Canada (161,808)
MGAC02H3 (21)
Daga (10)
Chapter 14

Chapter 14 Notes

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Financial Accounting

Chapter 14 LongTerm Financial Liabilities NotesNature of LongTerm Debt y generally longterm debt has various restrictive covenants that are meant to limit activities and protect both lenders and borrowers y the details that are often found in the indenture or agreement include the following the amount that the corporation is authorized to issue the interest rate the due date or dates call provisions property pledged as security sinking fund requirements working capital and dividend restrictions and limitations on incurring additional debt Notes Payable y longterm notes are similar in substance to bonds as both have fixed maturity dates and carry either a stated or implicit interest rate y however notes do not trade as easily as bonds in the organized public securities markets and sometimes do not trade at all y like a bond a note is valued at the present value of its future interest and principal cash flows and any discount or premium is amortized over the life of the note just as it is over the life of a bond Types of BondsNotes y bonds that are issued in the owners name are called registered bonds y a bearer or coupon bond however is not recorded in the owners name and may therefore be transferred from one owner to another by simply delivering it to the new owner y secured debt is backed by a pledge of some sort of collateral y mortgage bonds or notes are secured by a claim on real estate y debt issues that mature on a single data are called term bonds or notes and issues that mature in instalments are serial bonds or notes y income bonds pay no interest unless the issuing company is profitable y revenue bonds have this name because the interest on them is paid from a specified revenue source y deep discount bonds or noteswhich are also referred to as zerointerest debentures bonds or noteshave very little or no interest and therefore are sold at a large discount that basically provides the buyer with a total interest payoff at market rates at maturity y commoditybacked debt also called assetlinked debt is redeemable in amounts of a commodity y callable bonds and notes give the issuer the right to call and retire the debt before maturity y convertible bonds allow the holder or the issuer to convert the debt into other securities such as common shares Derecognition of Debt y from a financial reporting perspective debt is considered to be extin
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