Bond interest expense definition
/What is Bond Interest Expense?
Bond interest expense is the aggregate interest expense incurred during a reporting period for an organization’s bonds payable. It includes the following types of expenses:
Interest payments. This is the interest payments made by the issuer to bond holders. It is calculated as the bond coupon rate times the face value of the bond.
Premium or discount amortization. This is the amortization of any premium or discount on issued bonds for the reporting period. This is based on the price at which the bonds were sold to investors.
Bond issue costs. This is the amortization of any bond issue costs over the life of the bond.
Example of Bond Interest Expense
A company has issued $1,000,000 of bonds with a stated interest rate of 6%. For the current year, this means that the company will pay out $60,000 of interest expense to bond holders. In addition, the bonds were actually sold at a discount from their face value, so that investors can earn a higher interest rate. The amount of this discount scheduled to be amortized in the current period is $20,000. These two figures are added together to arrive at a total bond interest expense of $80,000 for the reporting year.
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FAQs
How Often is Bond Interest Expense Recorded?
Bond interest expense is recorded each time interest accrues based on the bond’s terms. This may occur on scheduled payment dates or through periodic accruals at month end or year end. The goal is to match interest cost to the period in which it is incurred.