Bonds Payable

What bonds payable covers

Bonds are long-term borrowings issued at a discount, at par, or at a premium depending on how the coupon rate compares with the market rate at issue. The discount or premium is amortised over the life of the bond, so interest expense reflects the effective rate rather than just the cash coupon paid.

These challenges cover issue entries, periodic interest and amortisation, and the carrying amount of the liability at each reporting date.

Where marks are usually lost

• Recording interest expense equal to the cash coupon, ignoring amortisation of the discount or premium.
• Amortising a premium in the same direction as a discount — a premium reduces interest expense, a discount increases it.
• Reporting the face value on the balance sheet instead of the amortised carrying amount.