Long-term debt and leases Updated November 2026

Bonds issued at par, discount or premium

Bonds Payable is always credited for the face value. At par, Cash is debited for the same amount. Below face (a discount, because the market rate exceeds the stated rate), debit Discount on Bonds Payable for the shortfall; above face (a premium), credit Premium on Bonds Payable for the excess.

Syntax

Par: Dr Cash / Cr Bonds Payable; Discount: Dr Cash, Dr Discount on Bonds Payable / Cr Bonds Payable; Premium: Dr Cash / Cr Bonds Payable, Cr Premium on Bonds Payable

Part	What it is
`Bonds Payable`	Long-term liability at face (maturity) value.
`Discount on Bonds Payable`	Contra-liability with a debit balance; reduces the carrying amount and is amortized to interest expense.
`Premium on Bonds Payable`	Adjunct liability with a credit balance; increases the carrying amount and is amortized to reduce interest expense.
`Carrying amount`	Face value minus unamortized discount or plus unamortized premium.

Examples

Dr Cash 100,000 / Cr Bonds Payable 100,000

Result: Carrying amount 100,000

100,000 of 6% bonds issued at 100 (par) because the market rate is also 6%.

Dr Cash 97,000, Dr Discount on Bonds Payable 3,000 / Cr Bonds Payable 100,000

Result: Carrying amount 97,000

Same bonds issued at 97 because the market rate is above 6%.

Dr Cash 103,000 / Cr Bonds Payable 100,000, Cr Premium on Bonds Payable 3,000

Result: Carrying amount 103,000

Same bonds issued at 103 because the market rate is below 6%.

Retirement at maturity: Dr Bonds Payable 100,000 / Cr Cash 100,000

Result: Liability removed

By maturity the discount or premium is fully amortized, so only face value remains.

Common mistakes

Crediting Bonds Payable for the cash received: the liability is recorded at face value; the difference goes to a discount or premium account.
Treating a discount as a loss or a premium as a gain at issue: both are spread over the life of the bonds as adjustments to interest expense.
Showing the discount as an asset: it is a contra-liability presented as a deduction from Bonds Payable.

Practice Bonds issued at par, discount or premium

These drills check your answer on live data, free, no account needed.

Bonds issued at parOn January 1, an interest payment date, Granite Ridge Utilities issues $500,000 of 5-year, 6% bonds at par (100). Interest is paid semiannually.
Bonds issued at a discountOn July 1, an interest payment date, Ashford Rail Services issues $400,000 of 10-year, 7% bonds at 97.
Bonds issued at a premiumOn January 1, an interest payment date, Meadowbrook Hospital Group issues $300,000 of 8-year, 9% bonds at 104.

Questions

Why would a bond sell at a discount?

Because its stated interest rate is lower than what investors can get elsewhere, so they pay less than face value to earn the market rate.

What is the journal entry for bonds issued at a premium?

Debit Cash for the proceeds, credit Bonds Payable for face value and credit Premium on Bonds Payable for the excess.

What does issued at 97 mean?

The bonds sold for 97% of face value, so 100,000 of bonds brings in 97,000 cash.

Bond interest and amortizationHow to record each bond interest payment and amortize the discount or premium: Dr Interest Expense, Cr Cash, with Discount credited or Premium debited.
Notes payableHow to record a promissory note: Dr Cash, Cr Notes Payable when borrowing; Dr Interest Expense, Cr Interest Payable at period end; repayment at maturity.
Accrued interestHow to accrue interest on a note at period end: Dr Interest Expense, Cr Interest Payable (borrower) or Dr Interest Receivable, Cr Interest Revenue (lender).
Finance leaseHow a lessee records a finance lease: Dr Right-of-Use Asset, Cr Lease Liability at the present value of payments; payments split into interest and principal.