ATTENTION! ATTENTION!
I think bonds just sank in… I can't believe it.
I sat down, wrote out an amortization table by hand… and it all just started to make sense. Carry val, effective rate = interest expense, then a coupon payment, diff is prem amort. which reduces the varry value….(typewriter DING!)….and start all over for next payment period…
to issue is
CR: CASH (the amount you get)
DR: BOND PAYABLE (this is teh face amount)
and the difference is a plug for premium/discount which is the difference between the cash you get and amount on face..
DR: BOND PREM
woop! woop!
first year interest expense is simply eff market rate * carry value, which is diff from the payments (usually face * stated)
DR: INT EXPENSE
CR: CASH (that round face * stated amount)
plug is the amortization of premium
DR: PREM AMORT
face + premium = carry value * eff rate = int expense – coupon payments = amort of premium…
If I told you that 20 minutes ago NONE of this made sense and I didn't know how to make a single J/E… you wouldn't have believed me. This is awesome! I can now answer simple bond mcq's without taking a pass….
I'm going to try and hit par/cost method tonight and see if my luck continues..
wooop! wooop!
AUD - 75*, 88 done 5/14! (*exp)
BEC - 74 , 77
REG - 65 , 76 (10 point combooo!!)
FAR - 69 , 75
Dr: perseverance
Dr: intelligence
Dr: luck
. Cr: . advisory score
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