Promissory Notes

Promissory Notes - Credit Lines Short-term loans offered by...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Credit Lines Short-term loans offered by a bank based by a prearranged line of credit. Compensating balances are sometimes required to be on deposit with the lending bank and is usually calculated as a percentage of the line of credit. Bonds payable Accounting for bonds involves recording, at issue, both the nominal or face value of bonds issued, and also the amount of cash proceeds actually yielded by their sale. The difference between these is recorded as a premium on bonds (when bond proceeds are higher than face value of bonds) or as a discount on bonds (when proceeds are lower than face value). The difference arises because the bonds can only be sold for what investors are willing to pay. Only rarely will the effective interest rate equal the stated interest rate (and then there will be no premium or discount). When investors pay less than the face value of bonds, they are effectively demanding an "effective interest rate" that is higher than the stated interest rate. When they pay more than face value, they are accepting an effective interest rate lower than the stated rate. In subsequent periods, over the term of the bond, the premium or discount is "amortized" down
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/03/2012 for the course ACCT 325 taught by Professor Warren during the Spring '08 term at Rutgers.

Page1 / 2

Promissory Notes - Credit Lines Short-term loans offered by...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online