Bond Basics
A long-term debt issued by a corporation
Bond
Bond sells for less than face value
Discount
Interest formula
Face Value × Rate × Time?
Discount increases this expense over time
interest expense
Account credited when bonds are issued
Bonds Payable
The amount a bond will be worth at maturity
Face Value
Bond sells for more than face value
Premium
$1,000 bond at 5% annual interest = ?
50
Premium decreases this expense over time
interest expense
Cash received is less than face value—record this
Discount on Bonds Payable
The date the bond must be repaid
Maturity date
Market rate higher than stated rate causes this
Discount
Semiannual payment on $1,000 bond at 6%
30
Process of spreading discount/premium over time
amortization
Entry includes interest expense, cash, and this
discount or premium amortization
Periodic payment made to bondholders
interest
Market rate lower than stated rate causes this
Premium
Two payments per year are called this
Semiannual
Discount on bonds payable is classified as this
contra liability
Account debited when bond is repaid
Bonds Payable
The name of the rate printed on the bond certificate
When the stated rate equals the market rate, bonds sell at this
Par Value
Formula for semiannual interest payments
(Face Value × Rate) ÷ 2
As a discount is amortized, the carrying value of the bond does this
Increases
When bonds are issued at a premium, which account is credited besides Bonds Payable?
Premium on Bonds Payable