Wiley GAAP: Practical Implementation Guide and Workbook

Chapter 18. LONG-TERM LIABILITIES (ASC 480 AND 835)

INTRODUCTION

Long-term (or noncurrent) liabilities are liabilities that will be paid or otherwise settled over a period of more than one year or, if longer, greater than one operating cycle. This chapter discusses accounting for bonds, long-term notes payable, mandatorily redeemable shares, and obligations to issue or repurchase the entity's own shares.

DEFINITIONS OF KEY TERMS

Bond. A written agreement whereby a borrower agrees to pay a sum of money at a designated future date plus periodic interest payments at the stated rate.

Effective interest method. Amortizing the discount or premium to interest expense so as to result in a constant rate of interest when applied to the amount of debt outstanding at the beginning of any given period.

Mandatorily redeemable shares. Any of various financial instruments issued in the form of shares that embody an unconditional obligation requiring the issuer to redeem the instrument by transferring its assets at a specified or determinable date (or dates) or upon an event that is certain to occur.

Market rate. The current rate of interest available for obligations issued under the same terms and conditions by an issuer of similar credit standing.

NOTES AND BONDS

Notes are a common form of exchange in business transactions for cash, property, goods, and services. Notes represent debt issued to a single investor without intending for the debt to be broken up among many investors. A note's maturity, usually ...