Long-Term Liabilities

Debts that are due more than one year from today (e.g., bonds payable, long-term notes).

Bond Face Value

The amount repaid to investors at the bond's maturity date.

Maturity Date

The specific date when the face value of a bond must be repaid.

Stated Interest Rate

The interest rate printed on the bond; used to calculate cash interest payments.

Market Interest Rate

The interest rate demanded by investors; used to compute present value and interest expense.

Cash Interest Payment

The periodic interest paid in cash, calculated as Face Value × Stated Rate.

Present Value (PV)

The value today of a future amount of money, discounted using the market interest rate.

PV of Face Value

The present value of the single lump-sum payment of the bond’s face amount at maturity.

Present Value of an Annuity (PVA)

The present value of equal recurring cash payments, discounted at the market rate.

PV of Interest Payments

The present value of all periodic interest payments, calculated using the PVA factor.

Bond Issue Price

The amount investors pay for the bond; equal to PV(face value) + PV(interest payments).

Premium on Bonds

A situation where bonds sell for more than face value because the market rate is lower than the stated rate.

Discount on Bonds

A situation where bonds sell for less than face value because the market rate is higher than the stated rate.

Carrying Value

The book value of a bond: face value adjusted for remaining premium or discount.

Premium Amortization

The amount by which the bond premium decreases each period; reduces the carrying value.

Discount Amortization

The amount by which the bond discount decreases each period; increases the carrying value.

Interest Expense

The true interest cost for the period, calculated as Carrying Value × Market Rate.

Installment Note

A loan repaid through equal periodic payments that include both interest and principal.

Installment Payment

The fixed amount paid each period on an installment note.

Principal Reduction

The portion of an installment payment that reduces the loan balance (Payment − Interest).

Rate per Period

The interest rate adjusted for the payment frequency (e.g., monthly rate = annual rate ÷ 12).

Loan Balance (Carrying Value)

The remaining unpaid principal on a loan after subtracting the principal portion of payments.

Effective Interest Method

A method where interest expense is calculated using Carrying Value × Market Rate each period.