Acc 545 Restructuring Debt Data

Part A: Long-term debt can generally be classified into three different categories: bonds payable, notes payable, and capital leases. Bonds payable can be secured by collateral, such as a mortgage bond, or unsecured, backed only by a company’s promise to pay. Most bonds carry a stated rate of interest but others are sold at a discount with an implied rate of interest inherent in the discounted sale. Some bonds can be converted into other securities. Other bonds can be called in by the corporation. All of the terms and features must be disclosed in the financial statements. Any restrictions or covenants must also be disclosed. These restrictions are placed on the issuing corporation to protect the bondholder. Restrictions may include inability to pay bonuses or dividends, purchase additional capital assets, a requirement for bond sinking funds, or maintaining specified levels of working capital or debt ratios. Any violations of bond restrictions or covenants must be disclosed. Bonds are reported at face value less unamortized discount or plus unamortized premium. The current portion (due within a year) is reported as a current liability, the remainder is reported as a long-term liability. Notes payable are sums of money borrowed by a company that are evidenced by a promissory note. Notes payable have a specified maturity date and generally have a specified interest rate. Notes payable that do not have a specified interest rate are issued at a discount and the interest component is the difference between the face amount of the note and the cash received. Notes payable can also have restrictions similar to bonds payable. The discount is amortized to interest expense over the life of the note. Notes payable are recorded at the present value of the principle and the present value of the interest payments. Capital leases are a form of financing used to acquire capital assets. Companies that use lease financing that meet the Financial Accounting Standards Board (FASB)