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Straight Line Amortization of Bond Premium or Discount definitions Flashcards

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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.