2. Significant debt needs of a company are often filled by issuing bonds. BondsCash Bond Liabilities

3. Bonds involve the long-term borrowing of a large sum of money. At maturity, the principal (or face value) is paid back as a lump sum. Individual bonds are often denominated with a face value, of $1,000. The Selling price of a bond is ‘stated’ as a percentage of its face value (e.g., a $1,000 face value bond selling at 96% would have a current selling price of $960) Bonds involve the long-term borrowing of a large sum of money. At maturity, the principal (or face value) is paid back as a lump sum. Individual bonds are often denominated with a face value, of $1,000. The Selling price of a bond is ‘stated’ as a percentage of its face value (e.g., a $1,000 face value bond selling at 96% would have a current selling price of $960) Bond Liabilities

4. Bonds usually have periodic interest payments based on a stated rate of interest. Interest is normally paid semiannually. Cash Interest paid is computed as: Interest = Principal × Stated Rate × Time Bond prices are usually quoted as a percentage of the face amount. For example, a $1,000 bond priced at 104 would sell for $1,040. Bonds usually have periodic interest payments based on a stated rate of interest. Interest is normally paid semiannually. Cash Interest paid is computed as: Interest = Principal × Stated Rate × Time Bond prices are usually quoted as a percentage of the face amount. For example, a $1,000 bond priced at 104 would sell for $1,040. Bond Liabilities

5. Bond Certificate at Face Value Bond Certificate at Face Value Bond Issue Date Bond Selling Price CorporationInvestors Bond Liabilities

6. Bond Issue Date Bond Interest Payments CorporationInvestors Interest Payment = Principal × Interest Rate × Time Interest Payment = Principal × Interest Rate × Time Bond Liabilities

7. Bond Issue Date Bond Principal at Maturity Date Bond Maturity Date CorporationInvestors Bond Liabilities

8. Advantages of bonds Bonds usually have longer terms to maturity than notes payable issued to banks. Bond interest rates are usually lower than bank loan rates. Advantages of bonds Bonds usually have longer terms to maturity than notes payable issued to banks. Bond interest rates are usually lower than bank loan rates.

9. Blair Company issues bonds on January 1, 2005. Principal = $1,000,000 Stated (“CASH”) Interest Rate = 9% Interest Dates = 6/30 and 12/31 Maturity Date = Dec. 31, 2024 (20 years) Blair Company issues bonds on January 1, 2005. Principal = $1,000,000 Stated (“CASH”) Interest Rate = 9% Interest Dates = 6/30 and 12/31 Maturity Date = Dec. 31, 2024 (20 years) Bond Certificate at Face Value Bond Certificate at Face Value Bond Selling Price Blair CompanyInvestors Bonds Issued at Face Value

10. Issuing the bonds has the following effect on Blair’s 2005 financial statements: To record the bond issue, Blair Company would make the following entry on January 1, 2005:

11. Bonds Issued at Face Value Bond Interest Payments Blair CompanyInvestors On each interest payment date, Blair Company will pay $45,000 in interest. The amount is computed as follows: $1,000, 000 × 9% × 6/12 = $45,000

12. Bonds Issued at Face Value The June 30, 2005 interest payment (and all other semiannual interest payments) has the following effect on Blair’s financial statements: To record an interest payment, Blair Company would make the following entry on each June 30 and December 31:

13. Bonds Issued at Face Value Bond Principal at Maturity Date Blair CompanyInvestors On December 31, 2024, Blair Company will return the $1,000,000 principal amount to the investors.

14. Bonds Issued at Face Value The principal repayment on December 31, 2024 will have the following effect on Blair’s 2024 financial statements: To record an the principal repayment, Blair Company would make the following entry on December 31, 2024: