Company SD would require the following journal entry: Interest expense 9,336, interest payable 8,000, bond discount 1,336, we notice that under the effective interest method the amount of bond discount amortized increases over the life of the bond.
The format of the journal entry for amortization of the bond discount is the same under either method of amortization - only the amounts recorded in each period will change.
Related Courses, accounting for Investments, corporate Finance, gAAP Guidebook.
Bond Discount, bond issuers can sell their bonds at a google play redeem code generator no survey online discount, at face value, or at a premium, depending on the difference between the documented bond coupon rate and the market interest rate at the time of the issuance.The actual semi-annual cash interest payments on the bond are of course based on the face value of the bond (250,000) and the bond discount rate (10).A business or government may issue bonds when it needs a long-term source of cash funding.The effective interest method is one method of calculating how the premium or discount on bonds payable should be amortized to the interest expense account over the lifetime of the bond.The amount of periodic bond discount amortization is dependent on the amortization method used.Each period, interest is charged on the opening book value of the bond at the market rate (8 so for example, in period 1 the interest is 259,075 x 8 x 6/12 10,363.Under effective interest method of amortization of bond discount, the bond discount amortized each year is equal to the difference between the interest expense based on the product of market interest rate and the carrying amount of the bond and the interest payable based.If prior to a bond issuance, the market interest rate increases, to avoid re-documenting the bond coupon rate to the higher market rate, the bond issuer can go ahead ticketnetwork promo code 2014 to sell bonds at a discount to compensate investors for the rate difference.The discount on bonds payable is 250,000 241,337 8,663, and the initial bond accounting journal entry would be as follows: Bonds payable issued at a discount journal entry Account Debit Credit Cash 241,337 Bonds payable 250,000 Discount on bonds payable 8,663 Total 250,000 250,000 The.Auditors prefer that a company use the effective interest method to amortize the discount on bonds payable, given its higher level of precision.The adjustment is done periodically by adding the allocated amount of bond discount amortization to the corresponding bond carrying value at the beginning of each interest-payment period.The effective interest expense on the bond for each payment period is then the sum of the periodic coupon payment and the allocated bond discount amortization.ABC records the initial receipt of cash with this entry: If ABC were to report the sale of bonds on its balance sheet immediately after the bond issuance, the bonds payable account and the discount on bonds payable account would be netted together, so that.Company SD would record the amortization and interest expense using the following journal entry: Interest expense 9,242, interest payable 8,000, bond discount 1,242, in year 2 the carrying amount would be 93,662 (92,420 plus the amortized bond discount of 1,242).The amortization of bond discount for the first year is simply the difference between these two figures and it equals 1,242.The final column headed premium, shows the difference between the interest calculated for the period and the payment for the period, and represents the amortization of the premium which needs to be credited to the interest expense account.
This method is a more accurate amortization technique, but also calls for a more complicated calculation, since the amount charged to expense changes in each accounting period. .
If so, the issuing entity stores the amount of this discount (the difference between the face value and the amount paid) in a contra liability account, and amortizes the amount of this reduced payment over the term of the bonds, which increases the amount that.Bond Amortization Schedule (Discount) The bond amortization schedule is produced as follows Bond amortization schedule when bond issued at a discount Interest Payment ann taylor loft promo code january 2015 Balance Discount 0 241,337 1 14,480 12,500 243,317 1,980 2 14,599 12,500 245,416 2,099 3 14,725 12,500 247,642 2,225 4 14,858 12,500.As before, the final bond accounting journal would be to repay the face value of the bond with cash.Entrepreneurs have a lot on their plate as they prepare to start up a new enterprise.Bond Amortization Schedule (Premium the bond amortization schedule is produced as follows.The second way to amortize the discount is with the effective interest method.Discount Amortization, a bond discount is a hidden cost to the bond issuer, considering that it must later pay back investors more than it receives from them.The effective interest method involves preparing a bond amortization schedule to calculate the interest expense based on the market rate at the time the bond was issued and the bonds book value.
Example of the Amortization of a Bond Discount.