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