Are the 3.71% – 4.36% notes under the Long-term Debt footnote of SpartanNash representative of the face value, book value, or market value of debt?
A) Book Value
B) Face Value
C) Market Value
Answer: B) Face Value
Explanation: The total debt represents the face value of debt which is directly plugged into the company’s long-term debt balance on the balance sheet. We know this because unamortized debt issuance costs are being subtracted out of total debt.
Face Value of Debt = Book Value of Debt + Unamortized Discounts
Take a discount bond for instance, the face value will be higher than the book value at issuance. Then, over time, the issuance discount (aka cost) will be amortized. This means that the book value moves up closer to the face value of debt as that cost is amortized.
Therefore, because the unamortized portion is netted out, we go from principal (face value) to book value.
Note the market value of debt does not show up on a company’s books. The book value does.
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