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BOND

BOND. A written promise wherein the borrower promises to pay to the holder of the bond: The face value (par value) of the bond at the maturity date. Interest on the face value at a specified rate on specified dates. TERMINOLOGY. Stated Rate of Interest

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BOND

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  1. BOND • A written promise wherein the borrower promises to pay to the holder of the bond: • The face value (par value) of the bond at the maturity date. • Interest on the face value at a specified rate on specified dates.

  2. TERMINOLOGY • Stated Rate of Interest • Also known as contract rate, nominal rate, or coupon rate. • Rate of interest that is printed on the face of the bond. • Remains the same for the entire life of the bond issue. • Used to determine the amount of periodic interest payments.

  3. TERMINOLOGY • Market Rate of Interest • Also known as effective rate or yield rate. • The rate of interest which investors in the market are willing to accept on bonds of this particular risk category on any given date. • The rate of interest an investor can earn on a particular bond issue by paying a certain price for it.

  4. BONDS ISSUED AT A DISCOUNT • Presentation on December 31, 19X1 Balance Sheet:Long-term Liabilities: Bonds Payable $1,000 Less: Discount on Bonds Payable 213 $787 • Book Value = Bonds Payable - Unamortized Discount • At the maturity date, the book value of the bonds will equal the face value.

  5. BONDS ISSUED AT A DISCOUNT

  6. BONDS ISSUED AT A DISCOUNT

  7. BONDS ISSUED AT A DISCOUNT

  8. BONDS ISSUED AT A PREMIUM • Presentation on December 31, 19X1 Balance Sheet:Long-term Liabilities: Bonds Payable $1,000 Add: Premium on Bonds Payable 248 $1,248 • Book Value = Bonds Payable + Unamortized Premium • At the maturity date, the book value of the bonds will equal the face value.

  9. BONDS ISSUED AT A PREMIUM

  10. BONDS ISSUED AT A PREMIUM

  11. BONDS ISSUED AT A PREMIUM

  12. BOND ISSUE COSTS • APB Opinion No. 21 • Examples: • Legal and accounting fees • Printing costs • Registration fees • Defer; record as Deferred Bond Issue Costs • Amortize (to bond interest expense) over life of bond issue by the straight-line method

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