【正文】 rallels accounting for notes payable. 1. issuance of the bond 2. semiannual interest payments 3. accrual of interest payable at the end of each accounting period 4. retirement of the bonds at maturity. ? Example: p108 ? Bonds issued between interest dates Example: p110 ? The present value concept and bond prices The price at which bonds will sell is the present value to investors of the future principal and interest payments. 1. Sell at par 2. Sell at discount. Example: p111 3. sell at premium Bonds discount as part of the cost of borrowing ? Interest charges can be specified in a note payable in two ways: ? The interest may be stated as an annual percentage of rate of the face amount of the note, ? Or it may be included in the face amount ? Whenever bonds are issued at a discount, the total interest cost over the life of the bonds is equal to the total o the regular cash interest payments plus the amount of the discount. Amortization of bond discount ? The simplest method for it is the straightline method, which allocates an equal portion of the discount to bond interest expense in each period. ? Example: p112 Bond issued as a premium ? Example: p 113 Bond premium as reduction in the cost of borrowing ? We have illustrated how issuing bonds at a discount, increases the cost of borrowing above the amount of the regular cash interest payments. Issuing bonds at a premium, on the other hand, reduces the cost of borrowing below the amount of the regular cash interest payments. ? Example: p 114 Yearend adjustment for bond interest expense ? In the preceding illustration, it was assumed that one of the semiannual dates for payment of bond interest coincided with the end of the pany’s accounting year. In most cases, however, the semiannual interest payment dates will fall during an accounting period rather than on the last day of the year.