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Bond Discounts and Bond Premiums

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Explain how bond discounts and premiums usually arise. Describe how they are accounted for in the balance sheet and income statement.

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https://brainmass.com/business/accounting/bond-discounts-bond-premiums-576163

Solution Preview

A bond discount or a bond premium results from a variance in the effective interest rate and the coupon rate of the bond. A premium happens when the effective interest rate is lower than the coupon rate and a discount takes place when the effective interest rate is higher than the coupon rate of the bond. Essentially, showing a bond discount means that the bond was sold for less than its face ...

Solution Summary

This solution discusses the difference between a bond discount and a bond premium. The proper reporting method for the balance sheet and the income statement in relation to a bond discount and a bond premium is also discussed.

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