Bonds may be categorized as mortgage or debentures. A mortgage bond is tied to a specific asset set and in default the bondholders will receive those assets to satisfy their claims. Debentures are just promises of the firm to repay principal plus interest. These bondholders have a general claim against the firms assets in the event of default and are not assured of satisfying claims at default. Firms can redeem bond issues, but if it is before the maturity date the issuer may be requried to pay a premium to re-acquire the bond issue.
Bonds can also be callable or convertible.
The bond may specify a price and time period at which the bond may be called but bondholders must comply with the bond and accept the redemption. In the example provide above the recorded transaction assumes that the bond was issued when the market interest rate was the same as the state rate on the bond. When that is not true investors are not willing to pay face value for a bond that pays less than the going market interest rate and they are more than willing to pay more for a bond that has a stated rate higher than the market rate. When either case is true the market value of the bond will be different that the face value. Bond Issue at a Discount Bond Issue at a Premium Bonds Payable are shown as long-term liabilities until the year before maturity.