DEFINITION of Unamortized Bond Premium
Unamortized bond premium refers to the amount between the face value and the amount the bond was sold at, minus the interest expense. It is what remains of the bond premium to be written off against expenses over the bond’s life.
In this manner, what does unamortized mean?
to liquidate or extinguish (a mortgage, debt, or other obligation), especially by periodic payments to the creditor or to a sinking fund.
One may also ask, what is unamortized debt expense? Unamortized bond discount. The bond issuer writes off the full amount of the bond discount over the remaining term of the bond with which it is associated. The amount written off is charged to interest expense. The amount of the bond discount that has not yet been written off is called the unamortized bond discount.
Similarly one may ask, what is a debt premium?
A premium bond is a bond trading above its face value or in other words; it costs more than the face amount on the bond. A bond might trade at a premium because its interest rate is higher than current rates in the market.
How do you calculate bond premium?
The total bond premium is equal to the market value of the bond less the face value. For instance, with a 10-year bond paying 6% interest that has a $1,000 face value and currently costs $1,080 in the market, the bond premium is the $80 difference between the two figures.
14 Related Question Answers Found
How do you get unamortized discount?
The unamortized bond discount is the difference between the par of a bond — the value of the bond at maturity — and the proceeds from the sale of the bond by the issuing company, less the portion that has already been amortized on the profit and loss statement.
What are the benefits of amortization?
The primary advantage of amortization is that it is a tax deduction in the current tax year, even if you did not pay cash for the asset. As long as the asset is in use, it can be deducted from your tax burden. Additionally, it allows you to have more income and more assets on the balance sheet.
How is unamortized premium calculated?
Calculating the Unamortized Bond Premium Multiplying the selling price of the bond by the YTM yields $1,090 x 4% = $43.60. This value when subtracted from the coupon amount (5% coupon rate x $1,000 par value = $50) results in $50 – $43.60 = $6.40, which is the amortizable amount.
What is the difference between a balloon loan and an amortized loan?
A balloon loan is a type of loan that does not fully amortize over its term. Since it is not fully amortized, a balloon payment is required at the end of the term to repay the remaining principal balance of the loan.
What is amortized cost?
Amortized cost is that accumulated portion of the recorded cost of a fixed asset that has been charged to expense through either depreciation or amortization. Depreciation is used to ratably reduce the cost of a tangible fixed asset, and amortization is used to ratably reduce the cost of an intangible fixed asset.
Is Bond premium taxable income?
If you pay a premium to buy a bond, the premium is part of your basis in the bond. If the bond yields taxable interest, you can choose to amortize the premium. If the bond yields tax-exempt interest, you must amortize the premium. This amortized amount is not deductible in determining taxable income.
What is premium on bonds payable?
A liability account with a credit balance associated with bonds payable that were issued at more than the face value or maturity value of the bonds. The premium on bonds payable is amortized to interest expense over the life of the bonds and results in a reduction of interest expense.
How do I report a bond premium?
Subtract the bond premium amortization from your interest income from these bonds. Report the bond’s interest on Schedule B (Form 1040A or 1040), line 1. Under your last entry on line 1, put a subtotal of all interest listed on line 1. Below this subtotal, print “ABP Adjustment,” and the total interest you received.
Why would someone buy a premium bond?
A person would buy a bond at a premium (pay more than its maturity value) because the bond’s stated interest rate (and therefore its interest payments) are greater than those expected by the current bond market. It is also possible that a bond investor will have no choice. In short, the bond market is very efficient.
Is a bond premium a debit or credit?
The unamortized premium on bonds payable will have a credit balance that increases the carrying amount (or the book value) of the bonds payable. The unamortized discount on bonds payable will have a debit balance and that decreases the carrying amount (or book value) of the bonds payable.
Why bonds are issued at discount and premium?
Why a Bond Trades at a Premium or a Discount A bond trades at a premium when its coupon rate is higher than prevailing interest rates. A bond trades at a discount when its coupon rate is lower than prevailing interest rates.
What is premium accounting?
A premium indicates the value of the shares and the market’s expectations for the company. Accounting for stock premiums is simple. The common stock account is used to record the par value of the stock issued and a separate account called paid-in capital in excess of par is used to record the premium.
How does a premium bond work?
What are Premium Bonds? NS&I Premium Bonds are a savings account you can put money into (and take out when you want), where the interest paid is decided by a monthly prize draw. You buy £1 bonds and each has an equal chance of winning, so the more you buy, the more your chances improve.
Is it better to buy a bond at discount or premium?
A bond selling at a premium is one that costs more than its face value, while a discount bond is one selling below face value. Usually, bonds with higher than current interest rates sell a a premium, while those with interest rates below prevailing rates sell at a discount.