[jairvin3]

I am sitting for FAR at the end of the month. I have found myself becoming increasingly confused with the following type of question (maybe I’m just burning myself out) and I would appreciate some clarity:

The question asks for the bond liability at the inception. Company issues 1,000 $1,000 bonds at .98. Obviously, the beginning carrying value is $980,000 but wouldn’t the liability at inception be $1,000,000?

I look at it like I would look at a common stock issue:

Dr. Cash 980,000

Dr. Discount 20,000

Cr. Bond Liability (1,000,000)

[SaveBandit]

Think about how that entry would be recorded if you were to use the net method.

Dr. Cash 980,000

Cr. Bond Payable 980,000

What's your liability in this instance? 980.

Also think about the amortization table. It would start at 980,000 and increase every year until it hit 1,000,000.

4 for 4

FAR 85
AUD 94
BEC 86
REG 90

[seattlesbest]

The journal entry you illustrated is accurate, but I think the question pertains to how mcuh would the liability be presented at inception date. So if you are to prepare a balance sheet at that date, how much bond liability would you show, which would be $980,000?

FAR - May 23, 2015 - 96
AUD - July 6, 2015 - 98
REG - January 23, 2016 - 83
BEC - January 25, 2016 - 84

[12tang]

If I have this right, the bond liability itself is 1,000,000 but since the contra account is present (discount), the real total liability at inception is 980,000. This total liability amount changes towards face value as time progresses and amortization occurs.

Now this I DO KNOW, you never record the bond itself at anything other than FACE VALUE. No netting with discount or premiums!

Using Becker self-study
FAR: (82) 175 hours - 1st attempt
BEC: (XX)
AUD: (69) 45hrs of study - 1st attempt
REG: (XX)

[Author]

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