Partnership Accounting (2)

Dr. Eman Abdallah

Othman
Y2-T2-2021
Lecture (5)
 Chapter (14)

Long-term Liabilities
 Issuance of Bonds
• Bonds could be either Issued on discount or
premium.
• Bonds sold at discount: bonds are sold at a price that is less
than face value of the bond, so investors will demand
interest rates that is higher than stated value as they are
paid less than face value of the bond
• Bonds sold at premium: bonds are sold at a price that is
more than face value of the bond.

• Amortization of a discount increases interest

expense. Amortization of a premium decreases
interest expense.
 Bonds Issued at Par on Interest Date
• When a company issues bonds on an interest payment date at par (face
value), it accrues no interest. No premium or discount exists.
 Bonds Issued at Discount on Interest Date

Companies will amortize the discount and charge it to interest

expense over the period of time that the bonds are outstanding.
 Bonds Issued at Discount on Interest Date

- The straight-line method amortizes a constant amount each

interest period
 Bonds Issued at Discount Interest Date

- The straight-line method amortizes a constant amount each

interest period

• At the end of the first year, 2020, the balance in the Discount
on Bonds Payable account is $21,600 ($24,000 − $1,200 −
$1,200).

• Over the term of the bonds, the balance in Discount on Bonds

Payable will decrease by the same amount until it has zero
balance at the maturity date of the bonds.
Bonds Issued Premium on Interest Date
Bonds Issued Premium on Interest Date
 Bonds Issued Between Interest Dates
• Companies usually make bond interest payments
semiannually, on dates specified in the bond
indenture.
• When companies issue bonds on other than the
interest payment dates, buyers of the bonds will
pay the seller the interest accrued from the last
interest payment date to the date of issue.
• Then, on the next semiannual interest payment
date, purchasers will receive the full six-months’
interest payment.
Bonds Issued Between Interest Dates
 Bonds Issued Between Interest Dates

• (10years*12M=120M-2M=118 month), (16000*4)

Final exam