56 - Carrying amount = Face value Less Discount Balance...

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Issuing Bonds at a Discount If stated interest rate of bonds is less than market interest rate, bondholders will not pay face value for bond Market price of bond drops below face value Cash received from bond issue is less than face value Issuing Bonds at a Discount Suppose a company issues $100,000 of 9%, five-year bonds when the market interest rate is 10% The market price of the bonds is $96,149 Carrying Amount: Bonds Issued at a Discount Bonds are shown at their carrying amount on the balance sheet
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Unformatted text preview: Carrying amount = Face value Less Discount Balance Balance Sheet January 1 Long-Term Liabilities: Bonds Payable $100,000 Less: Discount ($3,851) $96,149 Interest Expense on Bonds Issued at a Discount The company must pay interest based on the face value even though it received less than face value Interest Expense = Carrying Amount of Bond x Market Interest Rate Discount is amortized (reduced) over the bond term....
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