Long-term debt: carrying amount, classification, and changes

The rules, one page each

1. Current Portion of Long-Term Debt: The 12-Month RuleNumbers to know

   Classify principal contractually due within 12 months after the balance sheet date as current and the remainder as noncurrent. Exclude future interest; report accrued, unpaid interest as a separate current liability.

2. Debt classification with covenants, waivers, and refinancingContrasting cases

   If, at the balance sheet date, the lender has the contractual right to demand repayment (for example, from a covenant breach), the debt is current unless a waiver in place by issuance date removes that right for at least 12 months after year‑end. Post‑balance‑sheet refinancing does not change classification unless the borrower had a year‑end right to defer settlement (for example, a noncancelable refinancing agreement or a unilateral extension option).

3. Bonds and Notes: Carrying Amount and Debt Issuance CostsWorked example

   For term debt at amortized cost: carrying amount = face + unamortized premium - unamortized discount - unamortized debt issuance costs. Report accrued interest separately.

4. Term Debt vs. Revolving Credit Fees: Balance Sheet PresentationSide by side

   Deduct unamortized issuance costs from recognized term debt. Present capitalized revolving-facility costs as an asset, amortized over the commitment period, even when borrowings are outstanding.

5. Effective Interest Method: Zero-Coupon Note Carrying AmountWorked example

   Initially record a zero-interest note at present value. Each period, interest expense equals the effective rate times beginning carrying amount; discount amortization increases that amount, while premium amortization decreases it.

6. Debt Modification vs. Extinguishment: 10% Test and FeesStep by step

   For same-creditor changes without other extinguishment triggers, a cash-flow PV difference of at least 10%, including creditor fees only, requires extinguishment. Measure gain or loss using reacquisition price excluding accrued interest and net carrying amount.