Recognition of Discount or Premium

Oct 13, 2025 by talynt.org 49 views

Polver Company's Bond Payable Issuance: A Comprehensive Analysis

In the world of corporate finance, issuing bonds is a common method for companies to raise capital. Polver Company, a leading business entity, has recently issued a $\$1,300,000$ , $12\%$ , 10-year bond payable at face value on January 1, 2025. This significant financial move has sparked interest among investors and financial analysts alike. In this article, we will delve into the details of Polver Company's bond issuance, exploring the journal entries required to record this transaction.

A bond payable is a type of long-term debt instrument issued by a company to raise capital from investors. In exchange for the loan, the company promises to make regular interest payments and repay the principal amount at maturity. The bond payable is typically issued at a face value, which is the amount that the company promises to repay at maturity.

To record the issuance of the bond payable, we need to make two journal entries: one for the issuance of the bond and another for the recognition of the discount or premium on the bond.

Issuance of Bond Payable

When Polver Company issues the bond payable, it receives $\$1,300,000$ from the investors. This amount is recorded as a liability on the company's balance sheet, representing the face value of the bond.

**Journal Entry 1: Issuance of Bond Payable** Date Account Debit Credit Jan 1, 2025 Cash $\$1,300,000$ Bond Payable $\$1,300,000$

Recognition of Discount or Premium

Since the bond is issued at face value, there is no discount or premium on the bond. However, if the bond were issued at a discount or premium, we would need to recognize the discount or premium as an adjustment to the bond payable account.

As mentioned earlier, Polver Company pays interest semiannually on January 1 and July 1. The interest payment is calculated as a percentage of the face value of the bond.

**Journal Entry 2: Interest Payment** Date Account Debit Credit Jan 1, 2025 Interest Expense $\$78,000$ Cash $\$78,000$

In conclusion, the issuance of a bond payable by Polver Company is a significant financial transaction that requires careful recording and accounting. By understanding the concept of bond payable and the journal entries required to record this transaction, we can gain a deeper insight into the financial operations of the company.

A bond payable is a type of long-term debt instrument issued by a company to raise capital from investors.
The bond payable is typically issued at a face value, which is the amount that the company promises to repay at maturity.
The issuance of a bond payable requires two journal entries: one for the issuance of the bond and another for the recognition of the discount or premium on the bond.
Interest payments are made semiannually on the bond payable.

Companies should carefully consider the terms and conditions of the bond payable before issuing it.
Investors should thoroughly review the financial statements of the company before investing in its bonds.
Financial analysts should carefully analyze the bond payable transactions to ensure accurate recording and accounting.

As the financial landscape continues to evolve, companies will need to adapt to changing market conditions and regulatory requirements. The issuance of bond payable will remain a crucial aspect of corporate finance, and companies will need to stay ahead of the curve to remain competitive.

Accounting Standards Codification (ASC) 470, Debt
Financial Accounting Standards Board (FASB), Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606)

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Polver Company's Bond Payable Issuance: A Comprehensive Q&A

In our previous article, we explored the issuance of a bond payable by Polver Company, a leading business entity. We delved into the details of the bond issuance, including the journal entries required to record this transaction. In this article, we will answer some of the most frequently asked questions related to bond payable issuance.

Q1: What is a bond payable?

A1: A bond payable is a type of long-term debt instrument issued by a company to raise capital from investors. In exchange for the loan, the company promises to make regular interest payments and repay the principal amount at maturity.

Q2: What is the face value of a bond payable?

A2: The face value of a bond payable is the amount that the company promises to repay at maturity. It is typically the amount that the company receives from the investors when the bond is issued.

Q3: How is the interest payment calculated on a bond payable?

A3: The interest payment on a bond payable is calculated as a percentage of the face value of the bond. The interest rate is usually specified in the bond agreement and is paid semiannually or annually.

Q4: What is the difference between a discount and a premium on a bond payable?

A4: A discount on a bond payable occurs when the bond is issued at a price lower than its face value. A premium on a bond payable occurs when the bond is issued at a price higher than its face value. The discount or premium is recognized as an adjustment to the bond payable account.

Q5: How is the bond payable account recorded in the financial statements?

A5: The bond payable account is recorded as a liability on the company's balance sheet. The face value of the bond is recorded as a liability, and the interest payments are recorded as an expense on the income statement.

Q6: What are the benefits of issuing a bond payable?

A6: The benefits of issuing a bond payable include:

Raising capital from investors
Reducing the company's reliance on equity financing
Providing a fixed rate of return for investors
Improving the company's credit rating

Q7: What are the risks associated with issuing a bond payable?

A7: The risks associated with issuing a bond payable include:

Default risk: the risk that the company will not make the interest payments or repay the principal amount at maturity
Credit risk: the risk that the company's credit rating will decline, making it more difficult to raise capital
Interest rate risk: the risk that changes in interest rates will affect the company's ability to repay the bond

Q8: How is the bond payable issuance affected by changes in interest rates?

A8: Changes in interest rates can affect the bond payable issuance in several ways:

If interest rates rise, the company may find it more difficult to raise capital by issuing bonds
If interest rates fall, the company may find it easier to raise capital by issuing bonds
The company may need to adjust the interest rate on the bond to reflect changes in market conditions

Q9: What are the tax implications of issuing a bond payable?

A9: The tax implications of issuing a bond payable depend on the specific tax laws and regulations in the country where the company is located. In general, the interest payments on a bond payable are taxable to the company, and the company may be able to deduct the interest payments as an expense on the income statement.

Q10: How can investors protect themselves when investing in a bond payable?

A10: Investors can protect themselves when investing in a bond payable by:

Conducting thorough research on the company's creditworthiness and financial health
Carefully reviewing the terms and conditions of the bond agreement
Diversifying their investment portfolio to minimize risk
Monitoring the company's credit rating and financial performance

In conclusion, the issuance of a bond payable by Polver Company is a complex financial transaction that requires careful consideration and planning. By understanding the key concepts and risks associated with bond payable issuance, companies and investors can make informed decisions and minimize potential risks.

A bond payable is a type of long-term debt instrument issued by a company to raise capital from investors.
The face value of a bond payable is the amount that the company promises to repay at maturity.
The interest payment on a bond payable is calculated as a percentage of the face value of the bond.
The bond payable account is recorded as a liability on the company's balance sheet.
The benefits of issuing a bond payable include raising capital, reducing the company's reliance on equity financing, and providing a fixed rate of return for investors.
The risks associated with issuing a bond payable include default risk, credit risk, and interest rate risk.

Companies should carefully consider the terms and conditions of the bond payable before issuing it.
Investors should thoroughly review the financial statements of the company before investing in its bonds.
Financial analysts should carefully analyze the bond payable transactions to ensure accurate recording and accounting.

Accounting Standards Codification (ASC) 470, Debt
Financial Accounting Standards Board (FASB), Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606)
Securities and Exchange Commission (SEC), Rule 10b-5, Securities Exchange Act of 1934