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...
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...
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...
Where is the premium or discount on bonds payable presented on the balance sheet? Definition of Premium or Discount on Bonds Payable The premium or discount on bonds payable is the difference between the amount received...
: The company has a sufficient, long-term investment that is restricted for the purpose of paying the bondholders the maturity amount of the bonds when they come due. Typically, this investment is known as a bond sinking...
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...
How do you reduce the break-even point? Definition of Break-even Point The break-even point is the number of units or amount of revenues needed for the company’s income statement to report zero net income or zero net...
The book value of an asset is the amount of cost in its asset account less the accumulated depreciation applicable to the asset. The book value of a company is the amount of owner’s or stockholders’ equity....
What conditions cause a discount on bonds payable? Discount on bonds payable occurs when a bond’s stated interest rate is less than the bond market’s interest rate. If a $1,000,000 bond issue promises to pay interest...
%)]. Since bonds are a form of debt, the existing stockholders’ ownership interest in the corporation will not be diluted. Therefore, the future gains from use of the bond proceeds (minus the bond interest payments)...
What is the difference between stocks and bonds? Definition of Stocks Stocks, or shares of capital stock, represent an ownership interest in a corporation. Every corporation has common stock. Some corporations issue...
Why are bonds payable less costly than common stock? Bonds payable are less costly than common stock because the bonds issued by a corporation contain a formal contract to pay the investor a fixed amount of interest...
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...
The systematic allocation of the premium on bonds payable (reported as a credit in a liability account) to Bond Interest Expense over the life of the bonds. The journal entry to amortize the premium contains a debit to...
The systematic allocation of the discount on bonds payable (reported as a debit in a contra-liability account) to Bond Interest Expense over the life of the bonds. The journal entry to amortize contains a debit to the...
Also referred to as book value or carrying value; the cost of a plant asset minus the accumulated depreciation since the asset was acquired. This net amount is not an indication of the asset’s fair market value....
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...
The rate that will discount all cash flows to a net present value of zero.
The preferred method for systematically moving bond discount or premium from the balance sheet over to interest expense on the income statement over the life of the bond. This method is superior to the straight-line...
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...
Bond Issue Costs is a contra liability accounts reported along with Bonds Payable. Bond Issue Costs include the professional fees and registration fees associated with the issuance of bonds. The amount in the account...
An adjunct account is a valuation account that increases the book value or carrying value of a liability account. For example, the account Unamortized Premium on Bonds Payable (or simply Bond Premium) is an adjunct...
The interest rate of debt (bonds, loans) after deducting the income tax savings. For example, if a corporation has issued bonds with an interest rate of 8% and the corporation’s income tax rate is 25%, the...
Why does a bond's price decrease when interest rates increase? Definition of Bond’s Price A bond’s price is the present value of the following future cash amounts: The cash interest payments that occur every six...
A formal written promise to pay interest every six months and the principal amount at maturity.
. (The accountant credits Discount on Bonds Payable and debits Bond Interest Expense with a portion of the balance each accounting period.) The credit balance in the liability account Premium on Bonds Payable will be...
Why does the internal rate of return equate to a net present value of zero? Internal rate of return and net present value are discounted cash flow techniques. To discount means to remove the interest contained within the...
is the carrying amount or book value of the main account. An adjunct account might be referred to as a valuation account. Example of Adjunct Account Assume that a corporation issued bonds with a maturity value of...
What is the tax advantage when bonds are issued instead of stock? Definition of Bonds and Stock In this context, bonds refers to bonds payable, a form of long-term debt that typically promises to pay interest every six...
Why do bonds rarely sell for their maturity value? The reasons why bonds rarely sell for their maturity value are: The interest paid is usually fixed at the interest rate that is stated on the face of the bond. As a...
How do you account for bond issue costs? Definition of Bond Issue Costs The costs associated with issuing bonds are debited to a contra liability account such as Bond Issue Costs. Over the life of the bonds, the issue...
Our Explanation of the Balance Sheet provides you with a basic understanding of a corporation's balance sheet (or statement of financial position). You will gain insights regarding the assets, liabilities, and...
If a company issues stocks or bonds to pay outstanding debt, should this noncash transaction be included in the cash flow statement? If a company issues stocks or bonds for cash and then pays off the debt, the...
What is the effective interest rate for a bond? Definition of Effective Interest Rate of a Bond The effective interest rate of a bond is usually the market interest rate and the bond’s yield-to-maturity (as opposed to...
Why would someone buy a bond at a premium? Definition of Bond Premium Bond premium or premium on bonds occurs when the bond’s actual interest payments are greater than the interest payments expected by the market. The...
What is a bond sinking fund? Definition of Bond Sinking Fund A bond sinking fund is a corporation’s noncurrent asset that is restricted for the purpose of redeeming or buying back its bonds payable. Bonds that require...
sheet equity account. These will result in the income statement accounts beginning each accounting year with a zero balance. closing entries These entries transfer the end-of-the-year balances from the income statement...
A liability account containing the amount of premium on bonds payable that has not yet been amortized to interest expense. To learn more, see Explanation of Bonds Payable.
A liability account with a debit balance. Discount on Bonds Payable is a contra account associated with the liability account Bonds Payable.
The systematic allocation of the costs incurred to issue bonds (reported in a contra liability account) to Interest Expense over the life of the bonds.
The amount at which the holder of preferred stock or bonds must sell the stock or bonds back to the issuing corporation. The call price is disclosed in the indenture. The call price might be the face or par amount plus...
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