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Long-Term Liabilities: Issue Price of Bonds Payable

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In reviewing the Becker materials, the lecture, and your eBook reading for this week, there are several considerations. First being the issue price of the bonds payable. Should it be at discount or at a premium? The second consideration is the method used to amortize the bonds discount/premium. The third one is the decision to issue the bonds payable between the interest dates and the fourth but not the last one is the extinguishment of bonds payable.

Now discuss with suitable examples how the issue price of bonds payable is determined? When does the issue price results in a discount issue or a premium issue? What are the two methods of amortization of bonds discount/premium and how they are different from each other? What are the accounting issues when bonds payable are issued between the interest dates and when bonds payable are extinguish?

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Your discussion is 452 words plus an exhibit in Excel and a bond pricing model.

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Now discuss with suitable examples how the issue price of bonds payable is determined? When does the issue price results in a discount issue or a premium issue?

The price of the bond is based on the interest payments and face amount paid at maturity discounted back to the present at market rates. When the market rate is higher than the face rate (used to compute the interest payments), the bond's price is below the face amount, making it a discount bond. When the market rate is lower than the face rate (used to compute the interest payments), the bond's price is above the face amount, making it a premium bond.
Review the excel bond price calculator to see how this works (attached). Change the market rate and see how the ...

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  • MSc, University of Virginia
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