CFA Level 1

By Investopedia AAA

Liabilities - Journal Entries and Accounting Impact

We will now discuss the journal entries and accounting impact of bonds issued at par, a premium, or a discount.

The market value of a bond is calculated as follows:


Formula 9.1

Market value of a bond = PV of coupon payments + PV of principal

  • Par-value bonds
    Company ABC issues a $1m bond that will pay a 10% semiannual (coupon) for five years and similar bonds are paying 10%.

    Market value = $1m
    Face value or principal or book value = $1m

    Formula 9.1

    Market value of a bond = PV of coupon payments + PV of principal

  • Bond issued at a Premium
    Company ABC issues a $1m bond that will pay a 11% semiannual (coupon) for five years and similar bonds are paying 10%. Bond premiums are amortized using straight-line depreciation.
  • Bond issued at a Discount
    Company ABC issues a $1m bond that will pay a 9% semiannual (coupon) for five years and similar bonds are paying 10%. Bond discounts are amortized using staring-line depreciation.


Total Interest Cost Components

You May Also Like

Related Articles
  1. Personal Finance

    Top 6 Ways To Recession-Proof Your Job

  2. Personal Finance

    A Guide To Financial Designations

  3. Professionals

    The Claritas Investment Certificate: ...

  4. Professionals

    10 Steps To A Career In Hedge Funds

  5. Professionals

    Study Does Not End After The CFA

Trading Center