Video: Bonds Terminology

In this lesson, Nick Palazzolo, CPA, breaks down the often-complex world of bonds by clarifying key terms and concepts that are essential for understanding bonds as a form of long-term liability. He elucidates the basic elements such as the bonds payable, bond indenture, face value, stated and market interest rates, and also delves into how bonds are priced in relation to these rates, explaining the concepts of discount and premium in a practical and accessible way. Using a hypothetical scenario featuring Disney, Nick illustrates the practical implications of issuing bonds at various interest rates and how these decisions affect the amount of cash a company receives. Moreover, he simplifies the concept with the actual calculation of bonds issued at a premium or discount and ends by reviewing the related journal entries, ensuring these fundamental principles are well illustrated.