This Case is about Finance

Publication Date: 04/13/2016

This case investigates the accounting for long-term debt from the standpoint of the issuer of bonds payable. The international setting involving the France-based Renault issuing Chinese Yuan-denominated debt in the international markets (i.e., “dim sum bonds”) provides considerable chance for secondary learning.

The bookkeeping could be undertaken from the standpoint of U.S. GAAP or IFRS (i.e., the standards are indistinguishable for the principal trade and occasions considered in this situation, with the exception of hypothetical conversations related to the fair value alternative for debt accessible under SFAS 157 in U.S. GAAP).

The case requires students to account for the issuance of bonds offered at a reduction, to execute the effective interest method for several intervals, to compute the quantity of interest expense, which is billed to the income statement over the life of the discounted bonds (i.e., to comprehend the economic reasoning behind the recommended effective interest rate method). Furthermore, to comprehend the income statement consequences of early debt extinguishments as well as the trade entries connected with these trades, and to contemplate the consequences of the fair value approach had the issuer made this election.

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