Lesson: Bond Issuance Costs

In this lesson, soak up Nick Palazzolo's insights on how bond issuance costs are handled in financial accounting. Discover why these costs are presented as a direct deduction from the carrying amount of the related debt, not as a deferred charge, and how their amortization over the life of the debt becomes part of interest expense. With a straightforward example involving Stark Corporation's ten-year bonds, Nick breaks down the debit and cash considerations that accompany bond issuance. He also shows how the bond issue costs and the premium on bonds payable combine in the carrying amount at issuance, and how amortizing each affects interest expense. Wrapping up, Nick ties the two ideas together: the costs reduce the debt's carrying amount, and their amortization is part of interest expense.