Bonds

Accounting treatment of payment
Case 1 - Interest stated separately
Dec 30 Notes Payable 10.000
Interest Expense _225
Cash 10.225
(To record payment of
Commerzbank interest-bearing
note and accrued interest at
maturity)
interest expense
= 10.000 x 9% x 90/360
Case 2 - Interest in face amount
interest expense is lower in
case 2 than in case 1 since the
effective amount borrowed
was lower, too.
Dec 30 Notes Payable 10.000
Cash 10.000
(To record payment of note
with interest included in
face amount)
Dec 30 Interest Expense ____221
Discount on Note Payable 221
(To record interest
expense on note payable)
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