NON CURRENT LIABILITIES

BONDS PAYABLE
Pengantar Akuntansi II
Disusun oleh:
Maya Dwi Manika
Mayank Annezia Sweety

Bonds
Non Current Liabilities
Are obligation that are expected to be paid after
one year
Bonds
Bonds are form of interest-bearing notes payable
To obtain large amounts of long-term capital,
coorporate management usually must decide
whether to issue ordinary shares or bonds.

Bondss adventages
Bonds offer three advantages over ordinary shares:
1. Shareholder control is not affected
Bondholders do not have voting rights, so current owners (shareholders) retain
full control of the company.

2. Tax Savings result

In some countries, bond interest is deductible for tax purposes; dividends on
shares are not.

3. Earnings per share may be higher

Although bond interest expense reduces net income, earnings per share on
ordinary shares often is higher under bond financing because no additional
shares are issued.

TYPES OF BONDS
1. SECURED AND UNSECURED BONDS
SECURED BONDS have specific assets of the issuer pledged
as collateral for the bonds. A bond secured by real estate,
for example, is called a mortgage bond. A bond secured
by specific assets set aside to retire the bonds is called a
sinking fund bonds.
UNSECURED BONDS also called debenture bonds, are
issued against the general credit of the borrower. Companies
with good credit ratings use these bonds extensively.

TYPES OF BONDS
2. TERM AND SERIAL BONDS
Bonds that mature are due for payment at a single specified
future date are term bonds. In contrast, bonds that mature in
installments are serial bonds.

3. REGISTERED AND BEARER BONDS

Bonds issued in the name of the owner are registered bonds.
Interest payments on registered bonds are made by check to
bondholders of record. Bonds not registered are bearer (or
coupon) bonds. Holder of bearer bonds must send in coupons to
receive interest payment. Most bonds are issued today are
registered bonds

TYPES OF BONDS
4. CONVERTIBLE AND CALLABLE BONDS
Bonds that can be converted into ordinary shares at the
bondholders option are convertible bonds. The conversion
feature generally is attractive to bond buyers. Bonds that the
issuing company can retire at a stated currency amount prior to
maturity are callable bonds. A call feature is included in nearly all
corporate bond issues.

ISSUING BONDS AT FACE VALUE

A A corporate makes journal entries only when it issues or buys back bonds,
or when bondholders exchange convertible bonds into ordinary share.
For Example:
Altar Co. does not journalize transaction between its bondholders and other investor.
If Tom Smith sells his Altar Co. Bonds to Faith Jones, Altar Co. does not journalize the
transaction.

Issuing bonds at face value

On January 1, 2015, a corporation issues for cash $100,000 of 12%, five-year
bonds; interest payable semiannual. The market rate of interest is 12%
To entry the sale is:

dr
Jan. 1

Cash
Bonds Payable
(to record sale of bonds at
face value)

cr

100,000
100,000

Issuing bonds at face valuec

Over the term (life) of the bonds, companies make entries to record bond interest.
Interest on bonds payable is computed in the same manner as interest on notes
payable.
On June 30, an interest payment of $6,000 is made ($100,000 x .12 x 6/12)
The entry is:
dr
June
30

Interest expense

Cr

6,000

Cash

6,000

(paid six month interest on

The bond matured on December
bond)31, 2009. At this time, the corporation paid the face amount to the
bondholder.
dr
2019
Dec
31

Bonds payable
cash
(paid bond principal at maturity

cr

100,000
100,000

DISCOUNT OR PREMIUM ON BONDS

Bond Contractual
Interest Rate 10%

Issued when

Assume that face value of bonds 10%

Market Interest Rate

Bonds Sell at

8%

Premium

10%

Face Value

12%

Discount

ISSUING BONDS AT A DISCOUNT

Assume that the market rate of interest is 13% on the $100,000 bond
rather than 12%.
Present value of face amount of $100,000 due in
5
years at 13% compounded semiannually:
$100,000
x 0.53273 (PV of $1 for 10 periods at 6%)

$ 53,273

Present value of 10 semiannual interest

payments
of $6,000 compounded semiannually: $6,000 x
7.18883 (PV of annuity of $1 for 10 periods at
6%)

$ 43,133

Total present value of bonds

$ 96,406

ISSUING BONDS AT A DISCOUNT

On January 1, 2015, the firm issued $100,000 bonds for $96,406

(a discount of $3,594).
dr

Jan 1

Cash

96,406

Discount on Bonds Payable

3,594

Bonds Payable
(Issued 100,000 bonds on discount)

cr

100,000

ISSUING BONDS AT A DISCOUNT

On June 30, 2015, six-months interest is paid and the bond

discount is amortized using the straight-line method.

dr
June 30 Interest expense

cr

6,359

Discount on bonds payable

359

Cash

6000

ISSUING BONDS AT A PREMIUM

If the market rate of interest is 11% and the contract rate is 12%, the
bond would sell for $103,769.
Present value of face amount of $100,000 due in 5
years at 11% compounded annually: $100,000 x
0.58543 (PV of $1 for 10 periods at 5%)

$ 58,543

Present value of 10 semiannual interest payments of

$6,000 at 11%compounded semiannually: $6,000 x
7.53763 (PV of annuity of $1 for 10 periods at 5%)

$ 45,226

Total present value of bonds

$ 103,769

ISSUING BONDS AT A PREMIUM

On January 1, 2015 Sold $100,000 of bonds for $103,769 (a

premium of $3,769).
dr

Jan 1

Cash
Bonds Payable
Premium on Bonds Payable
(issued premium on bonds)

cr

103,769
100,000
3,679

ISSUING BONDS AT A PREMIUM

On June 30, paid the semiannual interest and amortized the premium.

dr
June 30 Interest Expense
Premium on bonds payable
Cash

cr

5622
378
6000

BOND RETIREMENTS
An issuing coorporation retires bonds either when it buys back (redeems) the
bonds or when bondholders exchange convertible bonds for ordinary shares.
The bond indenture may require that a fund for the payments of the face value
of the bonds at maturity be set aside over the life of the bonds. This special
fund is called a bond sinking fund.

BOND RETIREMENTS
On June 30, a corporation has a bond issue of $100,000 outstanding on which there is
an unamortized premium of $4,000. The corporation purchases 1/4 of the bonds for
$24,000.
dr
June 30

Bonds payable
Premium bonds payable
Cash
Gain on redemption of bonds
(retired bonds for $24000)

cr

25000
1000
24000
2000