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Bonds Payable lecture notes

Bonds payable are long-term debts issued by companies to raise capital, with bondholders receiving interest payments and principal at maturity. Key concepts include face value, coupon rate, market rate, and the issuance of bonds at par, discount, or premium. Proper recognition, measurement, and amortization of bond interest expenses are essential for financial management and analysis.

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5 views

Bonds Payable lecture notes

Bonds payable are long-term debts issued by companies to raise capital, with bondholders receiving interest payments and principal at maturity. Key concepts include face value, coupon rate, market rate, and the issuance of bonds at par, discount, or premium. Proper recognition, measurement, and amortization of bond interest expenses are essential for financial management and analysis.

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roacedric456
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Bonds Payable: Recognition, Measurement, and Amortization

Introduction to Bonds Payable

Bonds payable represent long-term debt issued by a company to raise capital. Bondholders are creditors
who receive periodic interest payments and principal repayment at maturity.

Key Terms in Bond Financing

 Face Value: The principal amount repaid at maturity.

 Coupon Rate: The interest rate paid on the bond.

 Market Rate: The rate investors require for similar investments.

 Premium and Discount: Bonds are issued at a premium (above face value) or discount (below
face value) depending on market interest rates.

Issuance of Bonds

1. At Par (Market Rate = Coupon Rate)

2. Cash XXX

3. Bonds Payable XXX

4. At a Discount (Market Rate > Coupon Rate)

5. Cash XXX

6. Discount on Bonds Payable XXX

7. Bonds Payable XXX

8. At a Premium (Market Rate < Coupon Rate)

9. Cash XXX

10. Premium on Bonds Payable XXX

11. Bonds Payable XXX

Bond Interest Expense Recognition

 Straight-Line Method: Equal amortization over the bond’s life.

 Effective Interest Method: Interest expense is calculated using the market rate at issuance.

Bond Retirement

 At Maturity:

 Bonds Payable XXX

 Cash XXX
 Before Maturity (Gains/Losses May Occur):

 Bonds Payable XXX

 Loss on Redemption XXX

 Cash XXX

 Discount on Bonds Payable XXX

Analysis of Bonds Payable

 Debt-to-Equity Ratio = Total Debt / Total Equity

 Times Interest Earned Ratio = EBIT / Interest Expense

Understanding bonds payable is crucial for managing long-term financing and assessing a company’s
financial health.

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