Straight Line Amortization of Bond Premium or Discount definitions Flashcards
Straight Line Amortization of Bond Premium or Discount definitions
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Face Value Principal amount of a bond stated on its certificate, representing the sum repaid to bondholders at maturity. Stated Rate Interest percentage printed on a bond, used to calculate periodic interest payments to bondholders. Market Rate Prevailing interest percentage in the market for similar bonds, influencing bond pricing at issuance. Premium Excess amount received over a bond’s face value when issued, occurring when the stated rate exceeds the market rate. Discount Shortfall between cash received and a bond’s face value at issuance, resulting when the stated rate is below the market rate. Straight Line Amortization Method allocating equal portions of bond premium or discount to each interest period over the bond’s life. Interest Expense Total cost recognized each period for borrowing, combining cash interest and amortized premium or discount. Bonds Payable Long-term liability account representing the total principal owed to bondholders at maturity. Premium on Bonds Payable Liability account reflecting the amount received above face value, reduced over time through amortization. Discount on Bonds Payable Contra-liability account showing the amount below face value, systematically reduced as interest expense increases. Carrying Value Net amount of bonds payable after adjusting for unamortized premium or discount, representing the bond’s book value. Semiannual Interest Period Six-month interval used for calculating and paying interest on bonds, doubling the number of periods per year. Issuance Entry Initial journal record capturing cash received, liability created, and any premium or discount at bond issuance. Interest Payment Periodic cash outflow to bondholders, calculated using the face value and stated rate, often adjusted for payment frequency. Plug Balancing figure in a journal entry, ensuring debits and credits are equal, often used for interest expense in amortization.
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