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Discount Bonds:Repaying Principal at Maturity

Brian Krogol
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Alright, so now we finally reached the maturity date, we're gonna be making those journal entries just like we did for interest expense over the life of the bond, we're gonna keep making those same journal entries every year. So if you can think about it, our discount on bonds payable. If we look at the discount on bonds payable, remember it's been 10 periods that have passed. Now we finally reached the maturity date. So we started at 3000 as a debit balance and we kept making 300 credits to the account with every interest payment. And we did that 10 times 300 times 10. Well that's 3000. Right? So we've reached a point where there's no balance left in the discount on bonds payable, all of the discount has been advertised to interest expense over the five years, right? Because we would have kept making those same interest expense journal entries and advertising 300 300 310 times over the 10 interest payments. Okay, so there's no more discount on bonds payable. All that's left is our liability of bonds payable of 50,000. So now once we've reached the maturity date It makes sense. Our balance sheet shows hey you owe $50,000 and that's exactly what we owe right now. Right, the $50,000 that we're gonna pay off because the discount is gone, remember when I was showing you before we were showing bonds payable, that always has the entire principal value in it. 50,000. And we had less discount. Well guess what? After we've gotten rid of the discount, there's no discount left at this point. We've we've advertised it to interest expense over the life of the bond. So our bonds payable is showing a value of 50,000 and that's what we're going to pay off. Right now. We're going to debit bonds payable for 50,000 on the maturity date And that gets rid of the liability, right? We had a credit balance of 50,000 and now we're debating it 50,000, it's gone. And how do we get rid of it by paying off the principal in cash for 50,000. So now we've paid off the full 50,000 principle in cash. Remember even though we raised 47,000 when we offered the bonds, we still have to pay the full 50,000 upon maturity. Okay, that's the big deal here, is that you you pay off the face value of the bonds regardless of the amount of money that you raised initially. Cool. Alright. So in this case our cash has decreased by 50,000 And our liabilities decreased by 50,000 as well. Alright, so this stays balanced and we're good here. This is always the easiest journal entry because all we gotta do is get rid of the face value that's sitting on our books and we get rid of the cash. That's how we paid for it. Cool. Let's go ahead and do a practice problem before we move on to premium on the bonds payable