Video: Introduction to Premiums and Discounts

In this lesson, unraveling the complexities of bond pricing is made simple as Nick Palazzolo, CPA, elucidates the conditions under which bonds are issued at premiums and discounts. Using Disney's bond issuance as an illustrative example, he explains that when bonds are issued at their face value, no premium or discount arises. But, the picture changes as the market rates fluctuate. Nick breaks down the concept further by demonstrating how a higher market interest rate results in a bond premium, while a lower interest rate compared to the bond's rate ushers in a discount. With practical tips on identifying these premiums and discounts from the numbers provided, this lesson demystifies the journal entries associated with these bond transactions.