Step 3 – Calculate the Issue Price of the Bond. Step 2 – Calculate the present value of the Coupon Payments of the Bond. Step 1 – Calculate the Present Value of the Face Value of $100,000. Calculate the issue price of the bond, assuming the market interest rate is 7% The only change in the market interest rate is 7%.įour-year bonds were issued at a face value of $100,000 on January 1, 2008. For instance, a bond with a face value (par value) of $750, trading at $780, will reflect that the bond is trading at a premium of $30 ($780-750). This occurs when a bond’s coupon rate surpasses its prevailing market rate of interest. Let us take the same example for bond accounting of premium bonds Premium Bonds A premium bond refers to a financial instrument that trades in the secondary market at a price exceeding its face value. – We note that the ending bond’s payable balance sheet amount is the same as $100,000 each year as a par value bond. – Calculate the ending balance sheet amount of Bonds payable for each year. – Bond Cash Payment = Face Value of the Bonds * Coupon Rate = $100,000 x 8% = 8,000 – Interest Expense (income statement) = Bond Issue Price x Interest Rate = $100,000 x 8% = 8,000 – Please note that the Interest expense reported in the Income Statement and the Bond coupon payments here are same. Calculate the ending balance sheet amount of bonds payable for the first year.– This is the sum total of Present value of Principal + Present value of Interest = 73,503 + 26,497 = 100,000 – In this case, the bond carrying value is equal to the Bonds Payable. Calculate the present value of the Coupon Payments of the Bond.You can use the PV Formula to calculate the present value. Calculate the Present Value of the Face Value of $100,000.Calculate the bond’s issue price, assuming the market price is 8%. Here we will take a basic example to understand bond accounting of par value bonds.įour-year bonds were issued at a face value of $100,000 on January 1, 2008. Bond Issued at Discount – If the market interest rate is more than that of the coupon rate, then the bond issues are at a Discount.Bond Issued at Premium – If the market interest rate is less than that of the coupon rate, then the bond issue is at Premium.Bond Issued at Par Value – If the market interest rate is equal to the coupon rate, then the bond issue is at Par.You are free to use this image on your website, templates, etc, Please provide us with an attribution link How to Provide Attribution? Article Link to be Hyperlinked Step 5 – Calculate the ending balance sheet amount of bonds payable of the first year.#3 – Bond Accounting – Discount Bonds Payable.Step 6 – Complete the Bond Accounting table.Step 5 – Calculate the ending Balance Sheet amount of Bonds Payable.Step 4 – Calculate the Interest Expense and Coupon Payments of the Bond.Step 3 – Calculate the Issue Price of the Bond.Step 2 – Calculate the present value of the Coupon Payments of the Bond.Step 1 – Calculate the Present Value of the Face Value of $100,000.
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