Long-term debt consists of present obligations that are not payable within a year or the operating cycle of the business, whichever is longer, but that require probable sacrifices of economic benefits in the future. Bonds payable, long-term notes payable, pension liabilities, and lease obligations are examples of long-term liabilities. Of these examples, this chapter focuses on bonds payable and long-term notes payable.
Accounting for long-term liabilities requires an understanding of the time value of money and its application in accounting procedures covered in this chapter. Accounting for long-term liabilities such as bonds payable and long-term notes payable also requires an understanding of the circumstances surrounding derecognition of such debt. For example, if derecognition involves repayment before maturity date, exchange of old debt for new debt, concessions granted by the creditor due to the debtor's financial difficulties (troubled debt restructuring), or funds specifically set aside to repay principal and interest directly to the creditor (defeasance), special accounting considerations and procedures are applied. The objective is to aid financial statement users in evaluating the business's solvency risk, and the amounts and timing of future cash flows.
Bonds are instruments used to raise long-term financing, usually when the amount of financing ...