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Is Bond a liability or asset?

Joe Ford

Is Bond a liability or asset?

As a bond issuer, the company is a borrower. As such, the act of issuing the bond creates a liability. Thus, bonds payable appear on the liability side of the company’s balance sheet.

Is Bonds Payable a debit or credit?

If there was a premium on bonds payable, then the entry is a debit to premium on bonds payable and a credit to interest expense; this has the effect of reducing the overall interest expense recorded by the issuer.

Are callable bonds current liabilities?

FASB, Financial Accounting Standards Board. Such callable obligations are to be classified as current liabilities unless one of the following conditions is met: The creditor has waived or subsequently lost the right to demand repayment for more than one year (or operating cycle, if longer) from the balance sheet date.

What is classified as a current liability?

Current liabilities are a company’s short-term financial obligations that are due within one year or within a normal operating cycle. Examples of current liabilities include accounts payable, short-term debt, dividends, and notes payable as well as income taxes owed.

Is a premium a liability?

Insurance premiums are paid for policies that cover healthcare, auto, home, and life insurance. Once earned, the premium is income for the insurance company. It also represents a liability, as the insurer must provide coverage for claims being made against the policy.

What kind of account is a premium?

A liability account with a credit balance associated with bonds payable that were issued at more than the face value or maturity value of the bonds. The premium on bonds payable is amortized to interest expense over the life of the bonds and results in a reduction of interest expense.

How do you account for bond premium amortization?

It amortizes a bond premium by multiplying the adjusted basis by the yield at issuance and then subtracting the coupon interest. Or in formula form: Accrual = Purchase Basis x (YTM /Accrual periods per year) – Coupon Interest.