What are the cost of bond interest?
Interest costs on bonds are interest payments that bond holders carry out bonds. In order to increase financing or capital, the company, municipality, state, regional or federal government can issue a bond. Investors buy a bond that contributes the money used by the entity for their capital needs. In return, bond buyers receive interest. This interest is an expenditure on the entity sold by a bond.
In other words, when the company issues bonds, it acts as a debtor. When an individual or investor buys bonds, they act like creditors. Just as every debtor is obliged to pay interest on the loan, in this case a government agency or a company lending is obliged to pay bond interest costs.
Society, government agencies or bond issuers record bond interest installments in the balance sheet of accounting records. As the cost of bond interest is recorded, it depends on how bonds were originally issued. Bond issuing optionsSun including a nominal value, discount or bonus.
When a bond is sold to investors in a nominal value, the bond buyer pays the price of a bond value. For example, with a 5 -year bond per $ 100,000 in the US (USD), which carries an interest rate of 10%, the buyer pays the bond nominal value. The Company records the issue of a bond in the liability section in the balance sheet. The Company records interest costs for 10% interest payment and attributes the accumulated interest payable for the same bonds of $ 10,000. When the Company makes interest, a collected interest account is written and is credited to a cash account, both for $ 10,000.
When bonds are sold with a discount, then the buyer pays less than the nominal value of the bond. For example, a $ 10,000 bond with $ 2% is sold for $ 9,800. However, the buyer of the Vykouzkouhopis on the date of maturity for the entire nominal value of 10,000 USD. When companies record the sale of a bond, it provides a cash account for a discount value and attributes bonds to the payback for the same amount. If you want to mark the discount price, record a discount by removing bond interest, $ 2,000 and ascribing bond discounts for the same amount in the balance sheet section.
When bonds are sold with a discount, the cost of bond interest is amortized throughout the life of the bond. For example, five -year bonds would be amortized by interest costs in five years. If the interest payment is $ 2,000, then the interest costs would be assigned $ 400 per year. For this year, the company provides a bond discount and attributes bonds due accounts in the balance sheet for an amortized amount for this year, $ 400. The company then records the cost of bond interest in the same way as when bonded at nominal value.
When bonds are sold during bonus, then the investor pays more than nomineeThe value of the bond. In this case, 2% of the premium means that the investor pays $ 102,000 for a bond selling for a bonus with a nominal value of $ 100,000. Companies record the sale of a bond by recording a debit on a cash account and credit on the bond account in the balance sheet. Interest costs are also amortized throughout their lives.
with premium bonds is selling a bond deducted from an account of payable bonds and added to the bond expenditure account in the balance sheet. When the bond matures, the investor claims the nominal value of the bond. The company then records interest costs in the same way as when the bond is redeemed at nominal value.