), and the targeted or required interest rate. Example of the Effective Interest Rate Assume that a corporation issues a $1,000 bond with a stated, contractual, face, or nominal interest rate of 5%. This means that the...
), and the targeted or required interest rate. Example of the Effective Interest Rate Assume that a corporation issues a $1,000 bond with a stated, contractual, face, or nominal interest rate of 5%. This means that the...
Where does a bond sinking fund appear on the balance sheet? Definition of Bond Sinking Fund A bond sinking fund is an investment made by a corporation that is restricted for the purpose of retiring its bonds payable,...
with the county government to make known the bank’s claim and to protect the bank’s position regarding the inventory. A bank lends a company $500,000 in the form of a real estate mortgage loan to purchase a...
at a premium. Any discount or premium on the bonds is recorded in a separate account. Another account is used to record the bond issue costs such as legal fees, auditing fees, registration fees, etc. These bond-related...
What does it mean to amortize the premium, discount, and issue costs on bonds payable? Definition of Amortize Premium, Discount, and Issue Costs With regards to bonds payable, the term amortize means to systematically...
What is discount on bonds payable? Definition of Discount on Bonds Payable Discount on bonds payable (or bond discount) occurs when a corporation issues bonds and receives less than the bonds’ face or maturity amount....
What is the book value of bonds payable? Definition of Book Value of Bonds Payable The book value of bonds payable is also known as the carrying value of bonds payable. The book value of bonds payable is the net or...
Our Explanation of Bonds Payable covers the recording of bonds, the accrual of interest expense, and the amortization of the discount and premium on bonds payable. You gain an understanding on why the market value of...
The interest rate specified or stated in a note payable or in a bond payable. Often this rate is fixed and will not change during the life of the note or bond.
What is a debenture? A debenture is an unsecured bond. In other words, a debenture is a bond without a lien on specific assets owned by the issuing corporation. Join PRO to Track Progress Mark the Question as Read...
, the basic accounting equation Assets = Liabilities + Owner’s Equity can be restated to be Assets = Equities. Equity can mean an owner’s interest in a personal asset. For example, the owner of a $200,000 house that...
A contra liability account that reports the amount of unamortized discount associated with bonds that are outstanding. The discount on bonds payable originates when bonds are issued for less than the bond’s face or...
The systematic allocation of the discount, premium, or issue costs of a bond to expense over the life of the bond. The systematic allocation of an intangible asset to expense over a certain period of time. The systematic...
liabilities may include loan principal payments not due within one year of the balance sheet date. For example, a mortgage loan on a company’s building will likely have 12 monthly payments due within one year of the...
, if a corporation’s incremental federal and state income tax rate is 30%, bond interest payments of $40,000 will reduce the income tax payments by $12,000 (30% of the $40,000 reduction in taxable income). If the bond...
Our Explanation of Present Value of an Ordinary Annuity uses the appropriate present value factors for discounting a stream of equal cash amounts occurring at equal time intervals. An important feature is the use of loan...
What are marketable securities? Marketable securities are unrestricted financial instruments which can be readily sold on a stock exchange or bond exchange. Marketable securities are often classified into two groups:...
Systematically moving the same amount each accounting period from a balance sheet account to an income statement account. For example, if the amount of Discount on Bonds Payable on a 10-year bond is not significant, then...
What are term bonds and serial bonds? Term bonds are bonds which mature or come due on a single date. Serial bonds are bonds which do not mature or come due on a single date. Instead, serial bonds have maturity dates...
Receivable or Loans Receivable is decreased. Definition of a Loan Payment A loan payment (such as a monthly mortgage loan payment or a monthly car payment) consists of an interest payment for one month’s interest and...
as a debit balance in Discount on Bonds Payable Unamortized issue costs reported as a debit balance in Bond Issue Costs Unamortized premium reported as a credit balance in Premium on Bonds Payable Book value of a...
the bonds’ stated interest rate was greater than the market interest rate. The amount of the premium is recorded in a separate bond-related liability account. Over the life of the bonds the premium amount will be...
to as a contra-liability account. Examples of Contra-Liability Accounts Some contra-liability accounts include: Discount on Bonds Payable Bond Issue Costs Discount on Notes Payable The debit balances in the above...
See bond issue costs.
See bond sinking fund.
Investments in common stock, preferred stock, corporate bonds, or government bonds that can be readily sold on a stock or bond exchange. These investments are reported as a current asset if the investor’s intention...
A series of equal amounts occurring at the end of each equal time interval. Also known as an ordinary annuity. An example would be the monthly payments on a loan. Another example is the semiannual interest on a bond.
A series of equal amounts occurring at the end of each equal time interval. Also known as an annuity in arrears. An example is the monthly payments on a loan. Another example is the semiannual interest on a bond.
Bonds with one maturity date (as opposed to serial bond).
Long term assets that are not classified as investments, property, plant, equipment, or intangible assets. An example is bond issue costs that are amortized to expense over the life of the bonds.
Generally, securities that can be sold quickly in the stock or bond market and where the investor’s intention is to sell them within one year of the balance sheet date.
The difference between the call price of a bond or preferred stock and its stated or par value.
This term is often associated with an investment in the bonds issued by another corporation if the bonds are traded on a bond exchange.
Generally a long term liability account containing the face amount, par amount, or maturity amount of the bonds issued by a company that are outstanding as of the balance sheet date. To learn more about bonds payable,...
To repurchase bonds that the company had previously issued.
Featured Review
"I want you to know just how much I love AccountingCoach, I use it all the time. I love the puzzles and tests, the information is broken down and extremely easy to understand. It's easy to find answers to specific questions. Finding AccountingCoach was the best thing for me and my employer benefits big time. I missed my opportunity to attend college but with AccountingCoach I have the same knowledge at my fingertips, forever! I can study at my own pace at home or at work. I am a full charge bookkeeper for a multi-million dollar business and occasionally I run into issues where I need help and I get it with AccountingCoach. Even if you have a degree you can't pass this up. No one remembers everything. Forever grateful. Thank you Harold." - Carrie H.
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,645 reviews
For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: