《银行会计学》（英文版） Chapter F13 Bonds Payable and Investments in Bonds

Chapter F13 Power notes Bonds Payable and Investments in Bonds Learning Objectives 1. Financing Corporations 2. Characteristics of Bonds Payable 3. The Present-Value Concept and Bonds Payable 4. Accounting for Bonds Payable 5. Bond sinking Funds 6. Bond Redemption c13 7 nvestments in Bonds 8. Corporation Balance Sheet 9. Financial Analysis and Interpretation c13-1

C13 - 1 Learning Objectives Power Notes 1. Financing Corporations 2. Characteristics of Bonds Payable 3. The Present-Value Concept and Bonds Payable 4. Accounting for Bonds Payable 5. Bond Sinking Funds 6. Bond Redemption 7. Investments in Bonds 8. Corporation Balance Sheet 9. Financial Analysis and Interpretation Chapter F13 C13 Bonds Payable and Investments in Bonds

Chapter F13 Power notes Bonds Payable and Investments in Bonds Slide #f Power Note Topics 3· Long-Term Financing 9. Characteristics of Bonds Payable 7· Time Value of Money 28. Issuing Bonds Payable 34. Redemption of Bonds Payable 35. Investments in Bonds 36. Number of Times Interest Earned Note: To select a topic, type the slide# and press Enter. I c13-2

C13 - 2 • Long-Term Financing • Characteristics of Bonds Payable • Time Value of Money • Issuing Bonds Payable • Redemption of Bonds Payable • Investments in Bonds • Number of Times Interest Earned Slide # Power Note Topics 3 9 17 28 34 35 36 Note: To select a topic, type the slide # and press Enter. Chapter F13 Power Notes Bonds Payable and Investments in Bonds

Two Methods of Long-Term Financing Resources Sources Liabilities Assets Stockholders Equity c13-3

C13 - 3 Two Methods of Long-Term Financing Resources = Sources Stockholders’ Equity Assets Liabilities

Two Methods of Long-Term Financing Resources Sources Liabilities Assets Equity Financing-Stoc c13-4

C13 - 4 Two Methods of Long-Term Financing Resources = Sources Stockholders’ Equity Assets Liabilities Equity Financing – Stockholders

Two Methods of Long-Term Financing Resources Sources Debt Financing- BondI Bondholders Assets Equity Financing-Stoc c13-5

C13 - 5 Two Methods of Long-Term Financing Resources = Sources Stockholders’ Equity Assets Liabilities Bondholders Equity Financing – Stockholders Debt Financing – Bondholders

TWo Methods of Financing Bondholders Stockholders Why issue bonds rather than stock? Bonds debt)-Interest payments to bondholders are an expense that reduces taxable income Stock equity-Dividend payments are made from after tax net income and retained earnings Earnings per share on common stock can often be increased by issuing bonds rather than additional stock c13-6

C13 - 6 Two Methods of Financing Bondholders Bonds (debt) – Interest payments to bondholders are an expense that reduces taxable income. Stock (equity) – Dividend payments are made from after tax net income and retained earnings. Earnings per share on common stock can often be increased by issuing bonds rather than additional stock. Why issue bonds rather than stock? Stockholders

Alternative Financing Plans-$800, 000 Earnings Plan 1 Plan 2 Plan 3 12 bonds $2,000,000 Preferred 9% stock, $50 par $2,000,0001,000,000 Common stock,$10par$4000,0002,000,0001,000,000 Total $4,000,000$4,000,000$4,000,000 Earnings before interest and income tax $800,000$800,000$800,000 Deduct interest on bonds 240,000 Income before income tax 800,000 800, 000 $ 560,000 Deduct income tax 320,000320,000224,000 Net income $480,000$480,000$336,000 Dividends on preferred stock 180.000 90.000 Available for dividends $480,000$300,000$246,000 Shares of common stock ÷400.000÷200,000÷100.000 Earnings per share $1.20 $1.50 $246 c13-7

C13 - 7 Alternative Financing Plans – $800,000 Earnings Plan 1 Plan 2 Plan 3 12 % bonds — — $2,000,000 Preferred 9% stock, $50 par — $2,000,000 1,000,000 Common stock, $10 par $4,000,000 2,000,000 1,000,000 Total $4,000,000 $4,000,000 $4,000,000 Earnings before interest and income tax $ 800,000 $ 800,000 $ 800,000 Deduct interest on bonds — — 240,000 Income before income tax $ 800,000 $ 800,000 $ 560,000 Deduct income tax 320,000 320,000 224,000 Net income $ 480,000 $ 480,000 $ 336,000 Dividends on preferred stock — 180,000 90,000 Available for dividends $ 480,000 $ 300,000 $ 246,000 Shares of common stock  400,000  200,000  100,000 Earnings per share $ 1.20 $ 1.50 $ 2.46

Alternative Financing Plans-$440, 000 Earnings Plan 1 Plan 2 Plan 3 12 bonds $2,000,000 Preferred 9% stock, $50 par $2,000,0001,000,000 Common stock,$10par$4000,0002,000,0001,000,000 Total $4,000,000$4,000,000$4,000,000 Earnings before interest and income tax $440,000$440,000$440,000 Deduct interest on bonds 240,000 Income before income tax 440,000 440, 000 200,000 Deduct income tax 176000176,000 80.000 Net income $264,000$264,000$120,000 Dividends on preferred stock 180.000 90.000 Available for dividends $264,000$84,000$30,000 Shares of common stock ÷400.000÷200,000÷100.000 Earnings per share $0.66$0.42 $030 c13-8

C13 - 8 Alternative Financing Plans – $440,000 Earnings Plan 1 Plan 2 Plan 3 12 % bonds — — $2,000,000 Preferred 9% stock, $50 par — $2,000,000 1,000,000 Common stock, $10 par $4,000,000 2,000,000 1,000,000 Total $4,000,000 $4,000,000 $4,000,000 Earnings before interest and income tax $ 440,000 $ 440,000 $ 440,000 Deduct interest on bonds — — 240,000 Income before income tax $ 440,000 $ 440,000 $ 200,000 Deduct income tax 176,000 176,000 80,000 Net income $ 264,000 $ 264,000 $ 120,000 Dividends on preferred stock — 180,000 90,000 Available for dividends $ 264,000 $ 84,000 $ 30,000 Shares of common stock  400,000  200,000  100,000 Earnings per share $ 0.66 $ 0.42 $ 0.30

Characteristics of Bonds Payable Long-term debt -repayable 10, 20, or 30 years after date of issuance ssued in face(principal) amounts of $1,000, or multiples of $1,000. Contract interest rate is fixed for term (life)of the bond Face amount of bond repayable at maturity date c13-9

C13 - 9 Characteristics of Bonds Payable Long-term debt – repayable 10, 20, or 30 years after date of issuance. Issued in face (principal) amounts of $1,000, or multiples of $1,000. Contract interest rate is fixed for term (life) of the bond. Face amount of bond repayable at maturity date

Bond variables and constants 1. Constants-fixed by bond contract. a. Principal (face) amount. b,. Contract rate of interest C. Term(life)of the bond. 2. Variables -determined in the bond market. a. Market price of the bond b. Market(effective) interest rate. c13-10

C13 - 10 Bond Variables and Constants 1. Constants – fixed by bond contract. a. Principal (face) amount. b. Contract rate of interest. c. Term (life) of the bond. 2. Variables – determined in the bond market. a. Market price of the bond. b. Market (effective) interest rate