CFA Level 1

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


  • 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.





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