🔍Bonds are sold at a discount when the market interest rate is higher than the stated rate, and at a premium when the market rate is lower than the stated rate.
📈The difference between the face value and the selling price of a bond is the discount or premium on bonds payable.
💰Discount on bonds payable is a prepaid interest by the issuer to bondholders, while premium on bonds payable is an additional interest paid by bondholders to the issuer upfront.
⏰The amortization process for discounts and premiums involves dividing the total discount or premium by the life of the bonds and allocating it over the bond's term.
💡The straight-line method is commonly used to amortize discounts and premiums, where the amortization amount is equal for each period.