Bond interest expense definition
/What is Bond Interest Expense?
Bond interest expense is the aggregate interest expense incurred during a reporting period for an organization’s bonds payable . It includes the following types of expenses:
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Interest payments . This is the interest payments made by the issuer to bond holders. It is calculated as the bond coupon rate times the face value of the bond.
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Premium or discount amortization . This is the amortization of any premium or discount on issued bonds for the reporting period. This is based on the price at which the bonds were sold to investors .
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Bond issue costs . This is the amortization of any bond issue costs over the life of the bond.
Example of Bond Interest Expense
A company has issued $1,000,000 of bonds with a stated interest rate of 6%. For the current year, this means that the company will pay out $60,000 of interest expense to bond holders. In addition, the bonds were actually sold at a discount from their face value , so that investors can earn a higher interest rate. The amount of this discount scheduled to be amortized in the current period is $20,000. These two figures are added together to arrive at a total bond interest expense of $80,000 for the reporting year.