ACC 221 1st Edition Lecture 27Outline of Previous Lecture- Section 26: Payroll Liabilitieso Payroll taxeso Additional money owed to governmento Full cycle of payroll Sales TaxOutline of Current Lecture - Section 27: Intro to Bonds Long term liabilitieso What are bonds?o Compounding interesto Table Factorso Pay Demando Journal EntriesCurrent Lecture- Section 27: Intro to Bonds Long term liabilitieso What are bonds? Bonds – method of borrowing money with more than one lendero Compounding interest Borrow $10,000, 6% annual interest, outstanding three years- Outstanding – don’t make payment (interest or loan) for specified number of years- Year 1: $10,000 (6%) = 600 $10,600 owed- Year 2: $10,600 (6%) = 636 $11,236 owed- Year 3: $11,236 (6%) = 674.16 $11,910.16 owedo Dr. Interest expense, Cr. Interest payable for each yearo Table factors Determine the amount owed to bank- Look up in table using the interest rate and number of periods Single payment – paying a lump sum at one time Annuity – stretching the payments overtime These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- Have the future amount, looking to get back to the present amount Face value, cost of borrowing, interest rate, periods, compoundingo Pay Demand Consider pay demand at time of sale- When setting bond to market, if interest rate is lower, the cost of borrowing is lowered, making the total larger than the face value, letting you borrow more. o Borrowing on discount - If interest rate increases, you will borrow less o Borrowing on premium - If interest rate decreases, you will borrow moreo Par borrowing - If interest rate same on initial & day of sale, will not change o Journal entries Dr. Cash, Cr. Bonds payable Use calculated selling
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