As per my knowledge, the cost of bond issuance is not the net liability of bond but an expense made for the issuance, may be thats why these costs are not included in the liability under Bond value and are amortized during the lifetime of the bond on straight line method.
But It will be helpful if someone more knowledgeable about this, gives the insights on this topic.
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Ashvin Kulkarni
Accountant
Pune
India
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Original Message:
Sent: 10-14-2020 04:21 AM
From: Tayba Al-Mehdar
Subject: Bonds CMA part 2
why is the bond issue costs deducted from the liabililty?
On June 30, Year 4, Huff Corp. issued 1,000 of its 8%, $1,000 bonds at 99. The bonds were issued through an underwriter to whom Huff paid bond issue costs of $35,000. On June 30, Year 4, Huff should report the bond liability at | |
| Answer (A) is correct.
A bond issued at 99 is issued at a price equal to 99% of its face amount (1,000 bonds × $1,000 face amount × .99 = $990,000). Debt issue costs must be reported in the balance sheet as a direct deduction from the face amount of the debt. Thus, the net bond liability is reported at $955,000 ($1,000,000 face amount – $10,000 discount on bond – $35,000 bond issue costs). |
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Tayba Al-Mehdar
Analyst
Khobar
Saudi Arabia
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