Discount on Bonds definitions Flashcards
Discount on Bonds definitions
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Discount on Bonds Payable Contra liability account representing the difference between a bond's face value and its lower issuance price. Face Value Principal amount of a bond that is repaid at maturity and used to calculate interest payments. Stated Rate Interest rate printed on the bond certificate, used to determine periodic cash interest payments. Market Rate Prevailing interest rate in the market for similar bonds at the time of issuance. Carrying Value Net amount at which a bond is reported on the balance sheet, calculated as face value minus unamortized discount. Amortization Systematic allocation of the bond discount to interest expense over the bond's life. Straight-Line Method Technique that spreads the total bond discount evenly across all interest periods. Interest Expense Total cost recognized each period, combining cash interest paid and amortized discount. Interest Payable Liability account reflecting interest owed but not yet paid at the end of an accounting period. Bonds Payable Long-term liability account showing the total face value of bonds owed by the issuer. Principal Repayment Payment of the bond's face value to bondholders at maturity, eliminating the liability. Contra Liability Account Account that offsets a related liability, reducing its carrying amount on the balance sheet. Par Value Bonds Bonds issued at a price equal to their face value, typically when stated and market rates match. Journal Entry Formal accounting record documenting the financial effects of bond transactions, including issuance, interest, and repayment. Semiannual Interest Interest payments made twice a year, requiring adjustment of annual rates and payment calculations.
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