Week 13 — Long-Term Liabilities

Why this matters

Whether you run a repair shop that borrows to expand, help a farm cooperative pay for a harvester, or read a city's notice about bonds for a new school, knowing how a bond's price, interest, and carrying value are recorded shows what a long-term debt really costs.

In plain language

Sometimes a business needs more money than one bank will lend, for longer than a year. It can borrow from many lenders at once by selling bonds (long-term promises to pay interest every period and to repay a fixed amount at the end). The lenders may pay exactly that fixed amount, less, or more, depending on the return they want compared with the interest the bond pays. This week you learn to record all three cases, to follow each period's interest, and to report the debt on the balance sheet. You also learn why paying less up front means a bigger total cost of borrowing.

• Already covered: Week 5's long-term liabilities and Week 12's notes payable.
• This week: bonds at face, at a discount, and at a premium.
• How they connect: a bond is a long-term note sold to many lenders.
• Where we're going next: Week 14, Stockholders' Equity.

Focus

How does a business record money it borrows for years, and why can the same bond promise sell for less or more than its face value?

By the end of this module, you should be able to:

• [ ] record bonds issued at face, at a discount, and at a premium
• [ ] compute interest expense with straight-line amortization
• [ ] follow the carrying value to the face at maturity
• [ ] report bonds as long-term liabilities

To-do

Plan your week

1. Read Chapter 13 (~40–50 minutes), then the lecture and slides.
2. Work the lecture tutorial (60–90 minutes).
3. Do the practice set (15–25 minutes).
4. Do the Accounting Workshop (about 90 minutes), the discussion, and the assignment.
5. Take the quiz.

This week's checkpoint: record the bicycle shop's bonds issued for $96,000 and find the $3,400 of interest expense and the $96,400 carrying value after one period.

You've got this

Take it in order, and ask your instructor if a step snags.

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