Accounting for Long-Term Liabilities and Bonds Payable
Debt to equity ratio
Proportion of total liabilities relative to total equity
Discount
Bond issued at less than face value
Premium
Bond issued for more than face value
Effective-interest amortization method
Calculates interest expense based on carrying amount and market interest rate
Liabilities on balance sheet
Current and long-term liabilities reported separately
Bondholders
Lenders who hold bonds payable
Retirement of bonds payable
Debit Bonds Payable, credit Cash at maturity
Amortization schedule
Details loan payment allocation and loan balances
Straight-line amortization method
Equal allocation of bond discount/premium to each interest period
Annuities
Equal cash payments made at equal time intervals
Interest expense
Expense incurred for borrowing money
Market interest rate
Interest rate at the time of bond issuance
Time value of money
Invested money earns interest over time
Bonds payable
Long-term debt issued to multiple lenders
Lump sum payments
One-time cash payments
Face value
Payment due at maturity of a bond
Long-term notes payable
Reported in long-term liabilities section of balance sheet
Mortgages payable
Reported in long-term liabilities section of balance sheet
Carrying amount
Value of a bond on the balance sheet
Future value
Value of an investment at a specific future date
Present value
Value of future cash flows discounted to present