Bonds & Long-Term Debt

Bond problems look intimidating because they combine present value, an amortization schedule, and journal entries in one question. They're actually the most predictable problems in Intermediate Accounting once you see the structure.

Every bond problem starts the same way: discount the cash flows at the market rate to get the issue price. A bond issued below face sold at a discount because its stated rate is below market; above face, a premium. From there the amortization schedule is one repeating row — interest expense is the carrying value times the market rate, cash interest is fixed at the stated rate, and the difference amortizes the discount or premium.

The single most common mistake is computing interest expense with the stated rate instead of the effective rate. The problems below build the schedule step by step so that stops happening.