[Anonymous]

Hi,

I was hoping someone could help me with my question. I just need some help understanding bonds issued between interest dates. When you amortize, do you only amortize for the period that the person held the bond, or do you amortize for the full period? Could someone provide me with a journal entry if possible? Thanks!

[littlenumberrobot]

I'm away from my notes(at work actually!) but I believe you prorate like you do accrued interest. Are you more familiar with the accrued bond interest portion? I think building the bond amortization schedule would help.

CA CPA - All because of the journey listed below
-----------------------------------------------------------------------
FAR - 53('10), 8/25/12 79 PASSED!
REG - 66('11), 69('12), 12/06/12 77 PASSED!!
BEC - 58('10), 74('12), 01/05/13 77 PASSED!!!
AUD - 43('11), 66('12), 69('13), 74('13) 7/29/13 85 PASSED!!!!!

(Combinations of Roger, Yaeger, Wiley Book, Wiley TB, & NINJA Notes)

Ethics 90%

[foreseeableCPA]

I believe you amortize from the day the bond is sold. The cash proceeds from the issuance includes the carrying amount + accrued interest. Accrued interest is from the last interest payment to when the bond was bought.

CPA - Class of 2013
CIA - Class of 2016

[littlenumberrobot]

@foreseeableCPA

So if you sell it say 6/30/12, it starts that day, going onward. So only half a year in 2012?

CA CPA - All because of the journey listed below
-----------------------------------------------------------------------
FAR - 53('10), 8/25/12 79 PASSED!
REG - 66('11), 69('12), 12/06/12 77 PASSED!!
BEC - 58('10), 74('12), 01/05/13 77 PASSED!!!
AUD - 43('11), 66('12), 69('13), 74('13) 7/29/13 85 PASSED!!!!!

(Combinations of Roger, Yaeger, Wiley Book, Wiley TB, & NINJA Notes)

Ethics 90%

[foreseeableCPA]

@littlenumberrobot

You are correct. Take this example I found in becker.

A bond issue on June 1, of the current year, has interest payment dates April 1 and October 1. Bond interest expense for the current year ended December 31 is for the period of :

A) 3 Months

B) 4 Months

C) 6 Months

D) 7 Months

Answer is 7 months.

CPA - Class of 2013
CIA - Class of 2016

[Anonymous]

So if a bond dated January first is issued on April 1st, I know that the proceeds received would include the interest accrued up until that date. On the date of the first payment (let's say July 30), the creditor would still receive the full payment because you're technically giving back the additional money you were given in the beginning right?

If we do the effective interest method and interest expense is only half the amount it's supposed to be but we pay the full amount, then wouldn't that difference make the amortization for the period higher than usual? Or do you only consider half the payment in the amortization schedule and not the full payment even though you are paying the full amount because they technically gave you half of it in advance?

Sorry if my question doesn't make sense, hope that's not too confusing!

[littlenumberrobot]

Well I understand the interest part, but I thought the original question was about the premium/discount…. So I am a little confused now also. When I see ammortize I think premium or discount. Are you asking about interest or premium/discount?

CA CPA - All because of the journey listed below
-----------------------------------------------------------------------
FAR - 53('10), 8/25/12 79 PASSED!
REG - 66('11), 69('12), 12/06/12 77 PASSED!!
BEC - 58('10), 74('12), 01/05/13 77 PASSED!!!
AUD - 43('11), 66('12), 69('13), 74('13) 7/29/13 85 PASSED!!!!!

(Combinations of Roger, Yaeger, Wiley Book, Wiley TB, & NINJA Notes)

Ethics 90%

[momto5]

https://www.cliffsnotes.com/WileyCDA/CliffsReviewTopic/Bonds-Payable.topicArticleId-21248,articleId-21182.html

Check the above website near the bottom – Bonds Issued Between Interest Dates – there is an example that maybe will help you.

FAR - 92 (4/27/12)
AUD - 96 (7/17/12)
BEC - 92 (8/30/12)
REG - 91 (11/12/12)

[foreseeableCPA]

When you amortize the discount/premium, dont include the accrued interest when multplying the market rate and the carrying value.

Im a bit confused now as well.

CPA - Class of 2013
CIA - Class of 2016

[Anonymous]

Yes, I was asking about whether you amortize for the full period or for the amount of time you've had the bond for.

[littlenumberrobot]

Looks like the when you use the interest method the amortization would just be the diference between the interest expense and actually payment. Does that clear things up?

Thank you momto5 for the link.

CA CPA - All because of the journey listed below
-----------------------------------------------------------------------
FAR - 53('10), 8/25/12 79 PASSED!
REG - 66('11), 69('12), 12/06/12 77 PASSED!!
BEC - 58('10), 74('12), 01/05/13 77 PASSED!!!
AUD - 43('11), 66('12), 69('13), 74('13) 7/29/13 85 PASSED!!!!!

(Combinations of Roger, Yaeger, Wiley Book, Wiley TB, & NINJA Notes)

Ethics 90%

[Trisha]

Per Becker…

The amount of interest accrued since the last interest payment is added to the price of the bond. The purchaser pays such interest and is reimbursed at the next payment date upon receipt of the full periods interest.

SP 1mil face for 926,395 plus

Accrued Interest 25,000

Total Cash received 951,395

Record Sale

DR Cash 951,395

DR Discount BP 73,605

CR BP 1,000,000

CR Bond Interest Exp/Payable 25,000

First Pmt

DR Bond Int Exp/Payable 50K (reduces above 25k prepaid)

CR Cash 50k

Also record regular amortization entries

Hope this helps

REG 72, 86 and DONE!!!
BEC 80 🙂
FAR 72, 78 🙂
AUD 73, 76 🙂

[Author]

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