What is a premium and discount bond?

When the market interest rate is higher than a bond's coupon rate, the bond sells at a price lower than its face value and the difference is called bond discount. A bond premium occurs when market interest rate is lower than the bond's coupon rate and the bond sells at a price higher than the face value. As part of the bond issuance process, the issuer sets a coupon rate keeping in view the current market interest rate and its assessment of the credit risk of the bond.

What is an example of a premium bond?

Example of Premium on Bonds Payable A bond with a stated interest rate of 8% is sold. At the time, the market rate is lower than 8%, so investors pay $1,100 for the bond, rather than its $1,000 face value. The excess $100 is classified as a premium on bonds payable, and is amortized to expense over the remaining 10 year life span of the bond.

What is bond premium in accounting?

Accounting bond issuance is recorded on the delivery date (closing date). ... Bond Premium is when the interest rate on the bond is more than the market rate and the excess price of the bond is acquired or sold at a premium over its par value. The price does not include accrued interest at the date of sale.