Non-Current Liabilities Bonds Payable Bond Payables Bonds payable are generated when a company issues bonds to generate cash. We always record Bond Payable at the amount we have to pay back which is the face value or principal amount of the bond. Reflects the non-current portion of unamortized premium payable general obligation bonds over the amount received from their sale. The entries for the 10 years are as follows: On December 31, the date of issuance, the entry is: On each June 30 and December 31 for 10 years, beginning 2010 June 30 (ending 2020 June 30), the entry would be (Remember, calculate interest as Principal x Interest x Frequency of the Year): On December 31 (10 years later), the maturity date, the entry would include the last interest payment and the amount of the bond: Note that Valley does not need any interest adjusting entries because the interest payment date falls on the last day of the accounting period. As with the straight‐line method of amortization, at the maturity of the bonds, the discount account's balance will be zero and the bond's carrying value will be the same as its principal amount. Supplies. Examples of non-current assets include: ... Bonds payable are used by a company to raise capital or borrow money. The entry to pay interest on December 31, 20X1 would be: After the payment is recorded, the carrying value of the bonds payable on the balance sheet increases to $9,408 because the discount has decreased to $592 ($623–$31). A small business operating as a corporation may issue bonds to investors to raise money for its operations. Practice. On ABC's financial statements,: a) cash paid for interest will be a constant percentage of the face value of the bonds. Investors are not interested in bonds bearing a contract rate less than the market rate unless the price is reduced. The total interest expense on these bonds will be $10,754 rather than the $12,000 that will be paid in cash. Selling bonds at a premium or a discount allows the purchasers of the bonds to earn the market rate of interest on their investment. Bonds sold at a discount result in a company receiving less cash than the face value of the bonds. They include long term debt, notes payable, and bonds payable. c. Current fair value is not reported. Play. The firm would report the $2,000 Bond Interest Payable as a current liability on the December 31 balance sheet for each year. For the first payment, the interest expense is $562. The bond sinking fund is part of the long-term asset section that usually has the heading “Investments.” The bond sinking fund is a long-term (noncurrent) asset even if the fund contains only cash. If an amount box does not require an entry, leave it blank. An … Issuance of bonds … Accounting for Bonds Payable. To record periodic interest payment and discount amortization. Non-current liabilities. The premium will decrease bond interest expense when we record the semiannual interest payment. Redemption of Bonds Payable A $940,000 bond issue on which there is an unamortized premium of $75,000 is redeemed for $795,000. The entry to record the issuance of the bonds increases (debits) cash for the $11,246 received, increases (credits) bonds payable for the $10,000 maturity amount, and increases (credits) premium on bonds payable for $1,246. The premium amortized for the last payment should be the balance in the premium on bonds payable account. As with discount amortization, the amortization of premium may be done using the straight‐line or effective interest method. 3. This Accounting: Bonds, Notes Payable and Liabilities will provide you different types of bond and their features. 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