Bond - Simulations

Question 1

Journal Entry for the issuance of a discounted bond

Answer 1

Dr. Cash - Calculated value
Dr. Discount on bonds payable - Plug
Cr. Bonds payable - Face value

Question 2

Journal Entry for issuance of a premium bond

Answer 2

Dr. Cash - Calculated amount
Cr. Premium on bonds payable - Plug
Cr. Bonds payable - Face value

Question 3

Difference in market rate between bond discount and premium

Answer 3

1. If market rate is higher than the stated rate then you have a discount & interest expense is more than cash amount
2. If market rate is less than the stated rate then you have a premium & interest expense is less than cash amount

Question 4

Journal entry for amortization of a bond discount

Answer 4

Dr. Interest Expense - Calculated amount * market rate
Cr. Discount on bonds payable
Cr. Cash - Face value * stated rate

Question 5

Journal entry for amortization of a bond premium

Answer 5

Dr. Interest expense - Calculated amount * market rate
Dr. Premium on bonds payable
Cr. Cash - Face value * stated rate

Question 6

Bond price

Answer 6

The bond price is the present value of the future cash payments to be paid by the issuer over the bond term. These payments are (1) the face value paid at maturity and (2) the interest payments.

Question 7

What is the time frame for issuing bonds between interest dates

Answer 7

The time between the date the bonds are issued and the date of the bond

Question 8

Journal entries for bond issued between interest date at a premium

Answer 8

Dr. Cash[facepremium] + [statedmonths between*face]
Cr. Premium on B/P - face * premium %
Cr. Accrued interest payable - “months between calculation”
Cr. Bonds Payable - Face

Question 9

Journal entries for bond issued between interest dates at a discount

Answer 9

Dr. Cash[faceDiscount] + [statedmonths between*face]
Dr. Discount on B/P - face * discount %
Cr. Accrued interest payable - “months between calculation”
Cr. Bonds Payable - Face

Question 10

Journal entries for amortization of bond issued at a premium between interest dates

Answer 10

First Payment
Dr. Interest expense
Dr. Premium
Dr. Accrued interest payable
Cr. Cash

Second payment
Dr. Interest expense
Dr. Premium
Cr. Cash

Question 11

Journal entries for amortization on bond issued at a discount between interest dates

Answer 11

First Payment
Dr. Interest expense
Dr. Accrued interest payable
Cr. Discount
Cr. Cash

Second payment
Dr. Interest expense
Cr. Discount
Cr. Cash

Question 12

How to account for a debt issue cost for bonds

Answer 12

Subtract from calculated amount

Question 13

How to do straight line amortization

Answer 13

1. Find the difference between premium & face or discount & face
2. Divide 1 by life of bond
3. Multiply face by rate
4. That’s how you come up with journal entries

Question 14

Steps for bond retirement

Answer 14

1. Cash goes out the door so you’re crediting it
2. Remove everything related to the bond which is the bond payable at face amount including unamortized portion
3. Then see if you need a gain or a loss

Question 15

Bond Retirement J/E

Answer 15

Dr. Bond Payable - Face amount
Dr. Premium if premium*
Dr. Loss if needed*
Cr. Cash - Face value multiplied by decimal
Cr. Discount if discount*
Cr. Gain if needed*
Cr. Unamortized costs