@@richardtesta1607 It is the PV of the bond principal and interest calculated of $229,825, multiplied by the effective interest rate. Which is the annual market rate of 8% divided by 2 since payments are semi-annual (aka 4%). $229,825 multiplied by 4% is $9,193. Cash will always be $7,500 and the bond discount will be the remainder to make the entry balance.
You can also calculate the future entries by taking the $229,825 and adding the amortization of the bond discount from the previous payment ($1,693 in this case) and then multiplying by the same 4% effective rate to get the interest expense for the next period (in this case 12/31). Hope this helps!
June 30th interest payment Interest expense (229,825*8%/2) $9,193 (Dr) Amortization of discount on bonds (plug). $1,693 (Cr) Cash. $7,500 (Cr) Next period the carrying value will be 231,518 Interest expense $9260,72 (Dr) Discount on bonds. (Plug) $1,760,72 (Cr) Cash $7,500 (cr)
That was so clear. thank you.
Love your cpa course best lectures ever
Thank you, So, much for your content.
Brilliant
Pls make a video on likely sims might be asked in BEC
for Jun 30th???
dr. interest expense 9,193
cr. cash 7,500
cr. discount on B/P 1,693
Very good Samantha, what about the journal entry on December 31?
@@DariusClarki75
dr. interest expense 9,261
cr. cash 7,500
cr. discount on B/P 1,761
How do you get the 9,193? I can’t figure it out.
@@richardtesta1607 It is the PV of the bond principal and interest calculated of $229,825, multiplied by the effective interest rate. Which is the annual market rate of 8% divided by 2 since payments are semi-annual (aka 4%). $229,825 multiplied by 4% is $9,193. Cash will always be $7,500 and the bond discount will be the remainder to make the entry balance.
You can also calculate the future entries by taking the $229,825 and adding the amortization of the bond discount from the previous payment ($1,693 in this case) and then multiplying by the same 4% effective rate to get the interest expense for the next period (in this case 12/31). Hope this helps!
Good work 👌👌👍
Much appreciated John, Did you apply for an i-75 Scholarship?
@@DariusClarki75 I am taking the FAR exam in Aug, do you have a list of topics that you expect to show up as SIMs? - I am so stressed about this exam
Keep watching for the next You Tube Video in the series of "Best Bet" FAR Topics for a Simulation. Hint, Think Investments!
June 30th interest payment
Interest expense (229,825*8%/2) $9,193 (Dr)
Amortization of discount on bonds (plug). $1,693 (Cr)
Cash. $7,500 (Cr)
Next period the carrying value will be
231,518
Interest expense $9260,72 (Dr)
Discount on bonds. (Plug) $1,760,72 (Cr)
Cash $7,500 (cr)
Hi Darius, in which will get more Simulation questions
Why is the principal with 4% 10 period one? Isn't it .680 (for 8% 5 period)?
semi annually = 8%/2 = 4%
since it's semi annual payment for 5 years = 10 total payments (periods)
there's a special place in hell for bonds, F bonds
I tried amortizing the numbers in the example and it didn't balance out to 250,000
it is because the the PV table rounded the factors. For the pv of 1 you could do 1/(1+.04)^10 and it would fix the rounding issue.
why would you not use the 8.58 instead of 8.11 for PV of payments?
Because you are working on the market rate not the stated rate semi-annually.
The stated interest rate is also the coupon rate which is the payment of the bond.
You discount with the market rate
I had bonds and it was nothing like this. Bonds are not that hard and they made it somehow impossible.