The bond is trading at a discount of $1,000 – $958.69 = $41.31 since the market price is below the par value. As a result, the bond discount rate is $41.31/$1,000 = 4.13 percent.
Do you reduce or add discount from bonds payable?
Discount on bonds payable is a counter account to bonds payable that reduces the value of the bonds and is deducted from bonds payable in the long-term liabilities area of the balance sheet.
Are discounts on payable bonds a liability?
The amount of unamortized discount connected with outstanding bonds is reported in this contra liabilities account. When bonds are issued for less than their face or maturity value, a discount on bonds payable occurs. Over the life of the bonds, the debit balance in this account will be amortized to bond interest expense, resulting in more interest expense than interest paid. See Explanation of Bonds Payable for further information.
Which of the following statements about a bond discount is true?
Which of the following statements about a bond discount is TRUE? – On the balance sheet, a discount on bonds due is added to the bonds payable total and shown with long-term liabilities.
How should the discount on payable bonds be shown in the financial statements premium on payable bonds?
The discount (premium) on bonds payable should be represented as a straight deduction from (addition to) the face amount of the bond in the balance sheet. Both of these accounts are liability valuation accounts.
Discounts and premiums on bonds payable are accounted for in what way?
The difference between the money received by the corporation issuing the bonds and the par value or face amount of the bonds is known as the premium or discount on bonds payable. The difference between the amount received and the par value is known as the premium on bonds payable. The difference between the amount received and the par value is known as the discount on bonds payable.
The premium and discount accounts are used to determine the value of an asset. The credit balance of the unamortized premium on bonds payable will raise the carrying amount (or book value) of the bonds payable. The unamortized discount on bonds payable will have a debit balance, lowering the bonds payable’s carrying amount (or book value).
Over the life of the bonds, the premium or discount will be amortized to interest expense. As a result, the unamortized sum in the premium or discount account.
What is the usual discount balance on bonds payable?
Because it differs from the standard credit balance, discount on bonds payable is a contra liability account. Its default balance is negative. To determine the carrying amount, the discount on bonds payable account is included. 13.
What is the purpose of amortizing the discount on payable bonds?
When a company or government requires a long-term source of capital, it may issue bonds. When a company issues bonds, investors are more likely to pay less than the face value of the bonds if the stated interest rate is lower than the current market rate. As a result, investors get a higher return on their lower investment. If this is the case, the issuing company records the amount of the discount (the difference between the face value and the amount paid) in a contra liability account and amortizes it over the life of the bonds, increasing the amount recorded as interest cost. As a result, the total amount of interest expense reported over the bond’s life exceeds the amount of interest actually paid to investors. The amount recognized is equal to the market interest rate on the day the bonds were sold. The following example best exemplifies the notion.
Which of the following statements about a premium on bonds payable is correct?
A premium on bonds due is added to the bonds payable balance and reflected on the balance sheet with long-term obligations.