How to Go About Issuing Bonds at Par

Issuing Bonds at Par

P1 Prepare entries to record bond issuance and interest expense.

To illustrate an issuance of bonds at par value, suppose a company receives authorization to issue $800,000 of 9%, 20-year bonds dated January 1, 2011, that mature on December 31, 2030, and pay interest semiannually on each June 30 and December 31. After accepting the bond indenture on behalf of the bondholders, the trustee can sell all or a portion of the bonds to an underwriter. If all bonds are sold at par value, the issuer records the sale as follows.

 



This entry reflects increases in the issuer’s cash and long-term liabilities.
The issuer records the first semiannual interest payment as follows.

 


Point: The spread between the dealer’s cost and what buyers pay can be huge. Dealers earn more than $25 billion in annual spread revenue.

Global: In the United Kingdom, government bonds are called gilts— short for gilt-edged investments.
 
The issuer pays and records its semiannual interest obligation every six months until the bonds mature. When they mature, the issuer records its payment of principal as follows.