Intermediate Accounting For Dummies

Chapter 15

Planning for Long-Term Obligations

In This Chapter

Discovering how a company raises cash

Identifying long-term liabilities

Accounting for notes payable

Reporting gain or loss on debt extinguishment

Accounting for bonds

If you own a car you financed, you’re probably all too familiar with long-term debt: loans that won’t be paid off by the end of the next 12-month period. Well, companies have long-term debt, too. A company usually uses current debt as a vehicle to meet short-term obligations like payroll and incurs long-term debt to finance company assets.

In this chapter, I give you the lowdown on two types of long-term debt: notes and bonds payable. Notes payable are debt a company takes on mostly through lending institutions such as banks to finance asset purchases – like a car or building. Bonds payable are typically issued by hospitals and municipalities to fund expansion (although corporations can issue them too).

This chapter walks you through the facets of this complicated ...