Bond's interest expense and coupon payment

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Ernest Seow

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Dear all,
Can anyone clarify the following:
Interest expense in Income Statement:
  • the amount is interest expense or the coupon payment? I understand that for par bond there will not be any issues; but what if the bond is issued at discount/premium.
Interest in Cash Flow Statement:
  • from Schwesers Notes it seems to suggest that the interest refers to the bond coupon payment.
Thank you.
Cheers,
Ernest
 
Interest expense on the income statement includes the coupon payment(s) due plus amortization of any premium/discount.
Interest paid on the statement of cash flows is the interest paid; i.e., the coupon payments made.
 
S2000magician wrote:
Interest expense on the income statement includes the coupon payment(s) due plus amortization of any premium/discount.
Interest paid on the statement of cash flows is the interest paid; i.e., the coupon payments made.
Click to expand...
Awesome! Understood and thanks so much S2000magician :)
 
Hi S2000 - Can you elaborate on “plus amortization of any premium/discount”?
Interest expense on income statement = amount of interest accrued by the firm in a period of time.
Amortization is your paying down of said debt?
What am I missing here?
Thanks so much
 
EPhilly wrote:
Hi S2000 - Can you elaborate on “plus amortization of any premium/discount”?
Interest expense on income statement = amount of interest accrued by the firm in a period of time.
Amortization is your paying down of said debt?
What am I missing here?
Thanks so much
Click to expand...
S2000magician is trying to say that:
For income statement
If it is a premium bond; interest expense (on income statement) will be = Coupon Payment less amortization premium
If it is a discount bond; interest expense (on income statement) will be = Coupon Payment add amortization discount
If it is a par bond; interest expense (on income statement) will be the same as coupon payment; no amortization discount/premium in this case.
For cash flow statement,
The interest paid recorded will be just the coupon payment itself (for both premium and discount bonds) as amortization expenses are non-cash; and hence ignored when computing cash flows.
For par bond, once again it will not be an issue as the interest paid is the same as the coupon payment.
 
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