1. Identify the various terms that are found in a note or bond contract such as face value, stated cash interest rate, and any types of security or covenants.
2. Record notes and bonds issued at face value where periodic interest payments are made on dates other than the year-end.
3. Explain the handling of notes and bonds that are sold between interest dates and make the journal entries for both the issuance and the first interest payment.
Question: Notes and bonds are contracts used in the borrowing of money. They are undoubtedly produced
with great care by attorneys knowledgeable in contract law. What legal terms are typically included in debt
Answer: The specific terms written into a contract or indenture vary depending on what a debtor is willing to
promise in order to entice a creditor to turn over needed financial resources. Some of the most common are as
Face value or maturity value. The note or bond will specify the amount to be repaid at the end of the contract
time. A $1,000 bond, for example, has a face value of $1,000—that amount is to be paid on a designated maturity
date. Thus, based on the information presented previously from Marriott’s financial statements, that company will
eventually be required to pay $350 million to the holders of its Series I notes.