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Redeeming Bonds before Maturity definitions

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  • Redemption
    Early repurchase of outstanding bonds by the issuing company, typically to reduce interest costs or respond to market rate changes.
  • Carrying Value
    Book value of bonds, calculated as face value minus unamortized discount or plus unamortized premium.
  • Repurchase Price
    Amount paid by a company to buy back its bonds from the market before maturity.
  • Gain on Retirement
    Positive difference when bonds are repurchased for less than their carrying value, reported on the income statement.
  • Loss on Retirement
    Negative difference when bonds are repurchased for more than their carrying value, reported on the income statement.
  • Face Value
    Principal amount stated on the bond certificate, representing the amount to be repaid at maturity.
  • Discount
    Difference when bonds are issued below face value, representing additional interest expense to be amortized.
  • Premium
    Difference when bonds are issued above face value, representing reduced interest expense to be amortized.
  • Amortization
    Systematic allocation of bond discount or premium over the bond’s life, affecting carrying value.
  • Journal Entry
    Accounting record documenting the debits and credits involved in bond retirement transactions.
  • Bonds Payable
    Liability account representing the total face value of bonds issued and outstanding.
  • Market Rate
    Prevailing interest rate in the market, influencing bond prices and redemption decisions.
  • Income Statement
    Financial report where gains or losses from bond retirement are recorded, impacting net income.
  • Semiannual Interest
    Interest payments made twice a year to bondholders, affecting amortization schedules.
  • Debit Balance
    Accounting term indicating an excess of debits over credits, typical for losses or discounts.