How do you calculate premium on bonds payable?
How do you calculate premium on bonds payable?
The total bond premium is equal to the market value of the bond less the face value. For instance, with a 10-year bond paying 6% interest that has a $1,000 face value and currently costs $1,080 in the market, the bond premium is the $80 difference between the two figures.
What is the premium on bonds payable?
Premium on bonds payable is the excess amount by which bonds are issued over their face value. This is classified as a liability on the books of the issuer, and is amortized to interest expense over the remaining life of the bonds.
Where does premium on bonds payable go on the balance sheet?
Premium on bonds payable is a contra account to bonds payable that increases its value and is added to bonds payable in the long‐term liability section of the balance sheet.
How do bonds payable work?
Bonds payable are a form of long term debt usually issued by corporations, hospitals, and governments. The issuer of bonds makes a formal promise/agreement to pay interest usually every six months (semiannually) and to pay the principal or maturity amount at a specified date some years in the future.
What is the normal balance of bonds payable?
154 Cards in this Set
| Cash | Asset, Current Asset Increase with Debit, Decrease with Credit Normal Balance Debit Balance Sheet, Statement of Cash Flows |
|---|---|
| Premium on Bonds Payable | Liability, Long-Term Liabilities (coupled with Bonds Payable) Decrease with Debit, Increase with Credit Normal Balance Credit Balance Sheet |
Is bonds payable a liability?
Bonds payable is a liability account that contains the amount owed to bond holders by the issuer. This account typically appears within the long-term liabilities section of the balance sheet, since bonds typically mature in more than one year.
How do you calculate bonds payable on a balance sheet?
It is calculated by multiplying the $11,246 (carrying value of the bonds) times 10% (market interest rate) × / (semiannual payment).
Is a bonds payable a current liability?
Bonds payable that mature (or come due) within one year of the balance sheet date will be reported as a current liability if the issuer of the bonds must use a current asset or will create a current liability in order to pay the bondholders when the bonds mature. This type of investment is known as a bond sinking fund.
Is bonds payable on the balance sheet?
As a bond issuer, the company is a borrower. As such, the act of issuing the bond creates a liability. Thus, bonds payable appear on the liability side of the company’s balance sheet. When a bond is issued, the issuer records the face value of the bond as the bonds payable.
What is salaries payable on the balance sheet?
Salaries payable is a liability account that contains the amounts of any salaries owed to employees, which have not yet been paid to them. The balance in the account represents the salaries liability of a business as of the balance sheet date.
What does premium on bonds payable mean?
Premium on bonds payable. Premium on bonds payable is the excess amount by which bonds are issued over their face value. This is classified as a liability, and is amortized to interest expense over the remaining life of the bonds. The net effect of this amortization is to reduce the amount of interest expense associated with the bonds.
How do you find the premium value of a bond?
If a bond pays $80 per year in interest per $1,000 of face amount (8 percent coupon) and the current market yield is 7 percent, calculate 80 divided by 0.07. In this case, a $1,000 bond has a premium value of $1,142.85.
What is the amortization of the $60K premium on bonds payable?
Since the premium of $60,000 is related to the interest rates when the bonds were issued, the amortization of the premium will involve the account Interest Expense or Bond Interest Expense. Since the bonds mature in 20 years, the $60,000 of premium on bonds payable will mean an annual amortization of $3,000 ($60,000/20 year).
What is the face amount of a bond payable?
A bond payable is just a promise to pay a series of payments over time (the interest component) and a fixed amount at maturity (the face amount). Thus, it is a blend of an annuity (the interest) and lump sum payment (the face). To determine the amount an investor will pay for a bond, therefore,…
