Interest expense on bonds payable is calculated as the: Carrying value times the market interest rate.
A bond can be defined as a fixed income instrument which is used to represent the indebtedness of a borrower (bond issuer) to an investor or creditor (bondholder).
Hence, when an investor or creditor (bondholder) purchases a bond, an agreed amount of money is being borrowed to the issuer (bond issuer) as a loan.
Consequently, the bond issuer is expected to pay an interest with a return of the principal amount at maturity to the bondholder (investor or creditor).
Hence, bonds payable only arises when a company issues (borrower) bonds so as to generate cash for its business and plans.
Interest expense on bonds payable is calculated as the carrying value times the market interest rate.
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