[jeff]

FAR Resources:

Free FAR Notes & Audio – https://www.another71.com/cpa-exam-study-plan

FAR 10 Point Combo: https://www.another71.com/products-page/ten-point-combo

FAR Score Release: https://www.another71.com/cpa-exam-scores-results-release

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Anonymous]

@ZsRizvi: the video truly made my day. LOL. it boosted my mood again. CPA CPA CPA!

[Monir]

Can anyone explain to me , a bond issue a discount when market interest rate higher than bond interest rate or vice versa for premium. How does it really attractive it to investor ? for example, If a bond issued at a premium why would someone buy that?

[Monir]

Can anyone explain to me , a bond issue a discount when market interest rate higher than bond interest rate or vice versa for premium. How does it really attractive it to investor ? for example, If a bond issued at a premium why would someone buy that?

[Anonymous]

@Monir – bonds issued at a premium provide an investor with an interest rate greater than the general market interest rate, so the investor is willing to pay more for the bond because he will get a larger return.

Market interest rates – 8%

Premium bond interest rate – 10%

Premium bond price $101 (so paying up $1)

The investor is willing to pay more than par for the bond because the rate he'll earn is higher.

Conversely, bonds issued at a discount give an investor less than the market rate of interest so he will only be willing to pay less (than par).

Let me know if that doesn't make sense and I'll try to explain it a different way.

[Anonymous]

@Monir – bonds issued at a premium provide an investor with an interest rate greater than the general market interest rate, so the investor is willing to pay more for the bond because he will get a larger return.

Market interest rates – 8%

Premium bond interest rate – 10%

Premium bond price $101 (so paying up $1)

The investor is willing to pay more than par for the bond because the rate he'll earn is higher.

Conversely, bonds issued at a discount give an investor less than the market rate of interest so he will only be willing to pay less (than par).

Let me know if that doesn't make sense and I'll try to explain it a different way.

[NYCaccountant]

@ Monir Basically the market rate on bonds is 8%, but the stated rate of interest on the bonds I'm trying to sell is only 7%.

Why would an investor buy a bond from me at a lower interest rate when they can get the same bond in the market at a higher interest rate. So what do I do? I discount my bond, which means that instead of the investor paying for the face value of the bond, they are only going to have to pay for most of the face value. Example below

Say the face value is 200,000, but i discount it and allow the investor to pay me 198,000.

Entry

Cash Dr. 198,000

Bonds Payable Cr. 200,000

Discount Dr. 2,000

Basically I gave the investor a 2,000 discount upfront and when the bond matures, I'll pay them 200,000 instead of 198,000 back. This makes it more attractive and the investor may be willing to buy my bond now.

For a premium, the market rate is less than the stated rate on my bond. So an investor wants to by my bond because my bonds have a higher interest than he would get otherwise. So what does that mean? My bonds are worth more than the market can offer right now. So I make the investor pay a premium to me because my bonds are actually worth more.

Example below:

Cash Dr.202,000

Bonds Payable Cr. 200,000

Premium Cr. 2,000

Edit- Sorry @ DJN. I would not have posted if I saw you respond already. Don't mean to cut in line lol.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[NYCaccountant]

@ Monir Basically the market rate on bonds is 8%, but the stated rate of interest on the bonds I'm trying to sell is only 7%.

Why would an investor buy a bond from me at a lower interest rate when they can get the same bond in the market at a higher interest rate. So what do I do? I discount my bond, which means that instead of the investor paying for the face value of the bond, they are only going to have to pay for most of the face value. Example below

Say the face value is 200,000, but i discount it and allow the investor to pay me 198,000.

Entry

Cash Dr. 198,000

Bonds Payable Cr. 200,000

Discount Dr. 2,000

Basically I gave the investor a 2,000 discount upfront and when the bond matures, I'll pay them 200,000 instead of 198,000 back. This makes it more attractive and the investor may be willing to buy my bond now.

For a premium, the market rate is less than the stated rate on my bond. So an investor wants to by my bond because my bonds have a higher interest than he would get otherwise. So what does that mean? My bonds are worth more than the market can offer right now. So I make the investor pay a premium to me because my bonds are actually worth more.

Example below:

Cash Dr.202,000

Bonds Payable Cr. 200,000

Premium Cr. 2,000

Edit- Sorry @ DJN. I would not have posted if I saw you respond already. Don't mean to cut in line lol.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[Anonymous]

@NYCaccountant – your explanation is so much more thorough that mine — feel free to jump in any time. (There should be a forum rule that if I try to explain something and you explain it, just delete mine and post yours… !)

ETA: As you can generally tell by my posts, I am better with the high level conceptual items than the down and dirty things that require calculations.

[Anonymous]

@NYCaccountant – your explanation is so much more thorough that mine — feel free to jump in any time. (There should be a forum rule that if I try to explain something and you explain it, just delete mine and post yours… !)

ETA: As you can generally tell by my posts, I am better with the high level conceptual items than the down and dirty things that require calculations.

[Monir]

Thank you both, make sense !! I just could not figure it out of course after explanation it def make sense.

Thx

[Monir]

Thank you both, make sense !! I just could not figure it out of course after explanation it def make sense.

Thx

[mjp44]

Retroactive application for accounting changes is required for changes in accounting principle, business entity and correction of error. Are there any other instances when retroactive application is required?

Additionally, with this application, the opening balances of retained earnings for the current year are adjusted to reflect this change. Does the company have to go back to each of the prior year's statments and adjust the specific accounts for this change? OR is the cumulative affect of the change reflected in the current financial statements? My thinking is if for example, inventory needed to be adjusted by a $100K increase… On the current financial statements, inventory (asset) would be increased by the $100K resulting in an increase to retained earnings for the same amount. This would result in a corrected inventory and retained earnings balance.

FAR- PASSED (11/13)
REG- PASSED (2/14)
BEC- PASSED (5/14)
AUD- PASSED (8/14)

If it's important to you, you will find a way. If it isn't, you will find an excuse.

[mjp44]

Retroactive application for accounting changes is required for changes in accounting principle, business entity and correction of error. Are there any other instances when retroactive application is required?

Additionally, with this application, the opening balances of retained earnings for the current year are adjusted to reflect this change. Does the company have to go back to each of the prior year's statments and adjust the specific accounts for this change? OR is the cumulative affect of the change reflected in the current financial statements? My thinking is if for example, inventory needed to be adjusted by a $100K increase… On the current financial statements, inventory (asset) would be increased by the $100K resulting in an increase to retained earnings for the same amount. This would result in a corrected inventory and retained earnings balance.

FAR- PASSED (11/13)
REG- PASSED (2/14)
BEC- PASSED (5/14)
AUD- PASSED (8/14)

If it's important to you, you will find a way. If it isn't, you will find an excuse.

[NYCaccountant]

mjp44 corrections of errors require a restroactive statement, they do not receive retroactive application. If you think about it, the error probably would have occured in the preceeding period, so you must restate the financial statements for the preceeding period. For an error, you don't need to go back in time to the earliest point feasible to correct because they generally only affect one period. For retrospective application, the company will adjust the beginning retained earnings for the current period. Usually companies present current and previous year financials together, so the beginning retained earnings will be adjusted for the current financials, the ending retained earnings will be adjusted for the previous year, and the cumulative effect of the change prior to the previous year will be reflected as adjustments to the carrying amounts of assets and liabilities in the previous years balance sheet.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[NYCaccountant]

mjp44 corrections of errors require a restroactive statement, they do not receive retroactive application. If you think about it, the error probably would have occured in the preceeding period, so you must restate the financial statements for the preceeding period. For an error, you don't need to go back in time to the earliest point feasible to correct because they generally only affect one period. For retrospective application, the company will adjust the beginning retained earnings for the current period. Usually companies present current and previous year financials together, so the beginning retained earnings will be adjusted for the current financials, the ending retained earnings will be adjusted for the previous year, and the cumulative effect of the change prior to the previous year will be reflected as adjustments to the carrying amounts of assets and liabilities in the previous years balance sheet.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[Author]

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