BOND

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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.

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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.

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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.

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BONDS ISSUED AT A DISCOUNT

• Presentation on December 31, 19X1 Balance
  SheetLong-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.

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BONDS ISSUED AT A DISCOUNT
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BONDS ISSUED AT A DISCOUNT
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BONDS ISSUED AT A DISCOUNT
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BONDS ISSUED AT A PREMIUM

• Presentation on December 31, 19X1 Balance
  SheetLong-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.

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BONDS ISSUED AT A PREMIUM
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BONDS ISSUED AT A PREMIUM
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BONDS ISSUED AT A PREMIUM
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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