Premium on Bonds definitions Flashcards
Premium on Bonds definitions
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Premium on Bonds Payable Excess amount received over face value when bonds are issued with a stated rate higher than the market rate. Stated Rate Interest percentage printed on the bond, used to calculate periodic cash interest payments to bondholders. Market Rate Prevailing interest percentage in the market for similar bonds, used to determine bond pricing. Face Value Principal amount of a bond to be repaid at maturity, also used to compute interest payments. Carrying Value Net amount at which bonds appear on the balance sheet, combining face value and any unamortized premium. Amortization Systematic reduction of the premium on bonds payable over the bond's life, typically using the straight-line method. Straight-Line Method Technique that allocates equal amounts of premium amortization to each interest period over the bond's term. Interest Expense Income statement item reflecting the cost of borrowing, adjusted for premium amortization to approach market rate. Interest Payable Liability account representing accrued interest owed to bondholders but not yet paid at period end. Bonds Payable Long-term liability account showing the face value of bonds owed to creditors. Principal Repayment Final payment of the bond's face value to bondholders at maturity, eliminating the liability. Credit Balance Accounting term indicating an amount that increases liabilities or equity, as seen in premium on bonds payable. Debit Accounting entry that reduces liabilities or increases assets, used to amortize the premium on bonds payable. Semiannual Interest Payment Periodic cash outflow to bondholders occurring twice a year, based on the stated rate and face value. Journal Entry Formal accounting record documenting transactions such as bond issuance, interest payments, and principal repayment.
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