Restructuring Debt
Restructuring Debt
Accounting 545
PART A
Debt can be categorized into three major categories, bonds, notes payable, and capital leases. They are all forms of debt that have similarities and differences.
The comparison for the current reporting for debt based on bonds, notes payable and capital leases are stated below:
Bonds: Bonds are considered long-term liabilities and have a different maturity date then current liabilities. The maturity date for a bond is usually a longer period of time then that of something that is listed under the current portion of debt. A bond comes from a contract that is known to be a bond indenture. A bond represents a promise to pay, money that is given a particular maturity date based on the length of the bond, periodic interest with a specific rate on the maturity amount given. The purpose of a bond is for long-term borrowing for the amount of capital needed. Bonds can be sold at a discount interest rate with an implied rate of interest, which is within the discounted rate. Bonds can be converted into securities and can be also called in by the company. All terms and restrictions must be disclosed in the financial statements. Violations of any bond restrictions or covenants must be disclosed to the lender. In the financial statements on the balance sheet the current portion of the bond due is reported as a current liability, the remainder is reported as a long-term liability.
Notes Payable: Notes Payable is money that is borrowed by a company by the use of a promissory note. Notes payable loans have specific maturity dates and have specific interest rates. The differences between current and long-term notes payable loans are the specific maturity dates given. Current notes payable are paid within a year and long-term notes are for long-term borrowing. Notes payable loans that do not have a specific interest rate given are given a discount and the interest rate given is usually the difference between the face..