How to Calculate Your Interest Expense? Formula & Examples

how to find bond interest expense

Effective interest rate method is one of the approaches used while amortizing the discount on bonds and charged to interest expense. While the business may not make periodic interest payments, interest income is still generated. These interest payments are generally paid periodically during the bond’s term, although some bonds pay all the interest it owes at the end of the period.

how to find bond interest expense

Bond interest expense is the aggregate interest expense incurred during a reporting period for an organization’s bonds payable. This expense includes the amortization of any premium or discount on issued bonds for the reporting period, which is based on the price at which they were sold to investors. It also includes the amortization of any bond issue costs over the same period. The interest expense is calculated by taking the Carrying Value ($93,226) multiplied by the market interest rate (7%). The amount of the cash payment in this example is calculated by taking the face value of the bond ($100,000) multiplied by the stated rate (5%).

How to Adjust Entries for Long-Term Notes Payable in Accounting

Full BioSuzanne is a content marketer, writer, and fact-checker. She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies for financial how to find bond interest expense brands. Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia. As a result, the amounts in year 2026 required a small adjustment.

Depending on the payments your company makes, the total outstanding debt could include the principal and the interest of the long-term loan. The interest expense shown on a company’s income statement represents the interest that has accumulated during the time period specified on the financial statements. However, interest expenses are only tax-deductible for individuals in certain circumstances, for example, on mortgage payments.

Where does the Expense Appear on the Income Statement?

Again, we need to account for the difference between the amount of interest expense and the cash paid to bondholders by crediting the Bond Discount account. At any point in time the liability on the balance sheet will equal the present value of the remaining cash flow payments to the creditor discounted at the effective market interest rate. The effective interest rate method uses the market interest rate at the time that the bond was issued. In our example, the market interest rate on January 1, 2022 was 4% per semiannual period for 10 semiannual periods. Bonds can be purchased from a government agency or a private company. When you buy a bond, you are loaning money to the issuer of the bond.

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