Cash flow is an important aspect of any organization and economic or seasonal fluctuations as well as restructuring can affect that. One way to offset minimal cash flow is long-term debts that are any loan or financial obligations existing over one year. Long-term debt can be in the form of bonds, notes payables, mortgages, and lease and pension liabilities. The current restructuring information requires bond, mortgage, and capital lease debt reporting as well as pension plan evaluation.
Bond liabilities develop from a bond indenture, which is a contract stating the time when repayment begins, the amount of interest paid, and amount to be repaid. Bonds are a unique way to increase cash flow because the bond purchaser or investor can sell the bonds to another investor prior to maturity. Bonds are recorded at the amortized value. When a bond is issued at a premium, the total par value and the premium collected less the cost of issuance is recorded as the bond liability. Conversely, if the bond is issued at a discount, the proper transaction would be the total par value less unamortized discount. There are many types of bonds but the most familiar forms are unsecured and secured (Kieso, Weygandt, & Warfield, 2007). Unsecured bonds do not require collateral and are most commonly in the forms of credit cards. Secured bonds require collateral, such as a mortgage.
Mortgage payable are financing for the purchase of property using the property itself as collateral and is reported in the same manner as bond liabilities. The present value of the recurring payments are calculated at the discount rate and decreased by the principal paid. The starting payments pay more interest than principal but over the life of the mortgage, the principal portion of the payment increases causing the interest portion to decline because the interest calculated on the outstanding principal balance is lower (Kieso,...