F4 M5 Flashcards
Bonds part 2
interest expense calc
face value * stated interest rate - premium amort OR + discount and bond issuance cost amortization
interest expense calc under effective interest method
carrying value at beginning of period * market interest rate
amortization of discount under effective interest method
interest expense - interest payment
amortization of premium under effective interest method
interest payment - interest expense
interest payment under effective interest method
bond face value * coupon rate
carrying value of bond at premium on B/S
face value + unamortized premium on bond
carrying value of bond at discount on B/S
face value - unamortized discount
bonds issued between interest dates
-when a bond is sold between interest payment dates, the amount of interest accrued since the last payment is added to the price of the bond
-purchaser pays interest and is reimbursed at next payment date on receipt of full period’s interest
year-end bond interest accrual
-accrue interest when entity’s year-end and interest payments do not line up
Dr. Interest expense (carry value * market interest rate)
Cr. Interest payable (face value * stated rate)
Cr. Discount on bond (residual)
OR
Dr. Premium on Bond (residual)
interest expense journal entry for discount
Dr. Interest expense
Cr. Cash
Cr. Amortization of bond discount
interest expense journal entry for premium
Dr. Interest expense
Dr. Amortization of bond premium
Cr. Cash
when should discounts be amortized?
until after the date of issuance
-entity will receive proceeds of bonds before any amortization
bond issuance costs include
-engraving and writing
-promotion costs
-underwriter’s fee
-legal fees
-accounting fees
