The face value or face amount of a bond payable is the amount printed on the bond. The face value is also referred to as the par value, stated value, maturity value, principal amount, and legal amount.
The face value is used to calculate the cash interest payments required during the life of the bond, and it indicates the cash amount that must be paid at the maturity date. For example, if a corporation issues a bond payable having a face value of $1,000,000 and a stated interest rate of 6% per year, it is likely that the bond issuer is obliged to pay the following:
- $30,000 of interest every six months until the bond matures ($1,000,000 X 6% X 6/12)
- $1,000,000 at the maturity date of the bond
At the time the corporation issues a bond for cash, the long-term (noncurrent) liability account Bonds Payable will be credited with the face value of the bond. Cash will be debited for the cash received, and any difference will be recorded in one or two of the following bond-related liability accounts:
- A debit to Discount on Bonds Payable
- A credit to Premium on Bonds Payable
- A debit to Bond Issue Costs
Between the date that a bond is issued and the date that the bond matures, the discount, premium, and/or issue costs must be amortized to the account Interest Expense. On the maturity date, the maturity value will be removed when the bond issuer's $1,000,000 payment is made to the one or more bondholders.
View Our Course Outline
