When bonds are issued, the bondholders pay an amount equal to, less than, or greater than the bonds’ face value. Bondholders pay face value for bonds when the interest rate on the bonds approximates the market rate for similar investments. the issuing corporation records the bond issue at face value as a long-term liability in the Bonds Payable account.
Bonds are issued at an amount less than face value when their face interest rate is lower than the market rate for similar investments. the difference between the face value and the issue price is called a discount and is debited to Unamortized Bond Discount.
When the face interest rate on bonds is greater then the market interest rate on similar investments, investors are willing to pay more than face value for the bonds. The difference between the issue price and the face value is called premium and is credited to Unamortized Bond Premium.
