Bonds Essay

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CHAPTER 14 BONDS • Discount increase to face value as discount increase to interest expense. ( No CD credit discount • Premium subtract to face value as premium subtract to interest expense. (bond Pay Day= Premium debt) • When you issue a bond at a discount or premium, the ISSUANCE is just like investments, DD, PC…Debit discount and credit premium! ISSUE OF BOND at PAR: ISSUE OF BOND Cash XX Bond payable XX (debt to be paid) SEMIANNUAL INTEREST PAYMENT: Interest Expense XX (to keep record of expense) Cash XX (goes down because your spending money to pay off your expense) RECORDS ACCRUED INTEREST AT YEAR END: Interest Expense XX Interest payable XX (Because it is not being paid, its just recording the debt) ISSUE OF BOND AT DISCOUNT OR PREMIUM AT INTEREST DATE ISSUE OF 800,000 BOND AT 97% Discount Cash $776,000 Discount $ 24,000 Bond payable $800,000 SEMIANNUAL INTEREST PAYMENT Interest Expense $ 41,200 Discount $1,200 -( discount goes UP to interest expense) (Separate D- IE) Cash $40,000 ON ADJUSTMENTING ENTRIES FOR BONDS: Interest Expense $41,200 Discount $1,200 Interest payable $40,000 - ( since the adjusting entry is just like a recording of accrued interest at end of year, we just record the interest expense and credit interest payable to be paid at a later date…(not cash to be paid today) ISSUANCE OF A PREIUM BOND: Cash $824,000 Premium $24,000 Bond payable $800,000 BOND PREMIUM SEMIANNUAL INTEREST PAYMENT: Interest Expense $38,800 Premium $ 1,200 Cash $ 40,000 ADJUSTING ENTRY AT END OF YEAR PREIUM: Interest Expense $38,800 Premium $1200 Interest payable $40,000 BONDS ISSUED BETWEEN INTEREST DATES: Assume that on March 1st Corp issues 10 year bond but its dated January 1st 2010 with a par value of 800,000 (2 months before it was issued). So we

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