A bond discount is relevant when a bond issues at less than face value.
Suppose, for example, a business issued 10 2-year bonds payable with a par value of 250,000 and semi-annual payments, in return for cash of 259,075 representing a market rate.
Bond Amortization Schedule (Premium the bond amortization schedule is produced as follows.
The journal entry to record Year 1 is to debit interest expense for 9,635.
In effect, because the bonds were issued at a discount and the business received less cash than the par value of the bonds, the cost (interest) to the business is increased each period by the amount of the bond discount amortization.Bonds payable are issued by a business to raise finance.The present value of the bond is 65,873 (100,000.65873).Bond amortization schedule final journal Account Debit Credit Cash 250,000 Bonds payable 250,000 Total 250,000 250,000 An identical process is followed if the bonds are issued at a discount as the following example shows.Bond Amortization Schedule (Discount) The bond amortization schedule is produced as follows Bond amortization schedule when bond issued at a discount Interest Payment Balance Discount 0 241,337 1 14,480 12,500 243,317 1,980 2 14,599 12,500 245,416 2,099 3 14,725 12,500 247,642 2,225 4 14,858 12,500.The actual semi-annual cash interest payments on the bond are of course based on the face value of the bond (250,000) and the bond discount rate (10).
So thats 7,000 interest expense per year.
As before, the final bond accounting journal would be to repay the face value of the bond with cash.
The premium on bonds payable is 259,075 250,000 9,075, and the initial bond accounting journal entry would be as follows: Bonds payable issued at a premium journal entry.
The journal entry to record this transaction is to debit cash for 87,590 and debit discount on bonds payable for 12,410.The final column headed premium, shows the difference between the interest calculated for the period and the payment for the period, and represents the amortization of the premium which needs to be credited to the interest expense account.The present value of the interest payments is 21,717 (7,000.10245).For example, in period 1, the posting of the actual interest paid and the premium amortization shown in the bond amortization schedule is as follows: Bond amortization schedule period 1 journal entry Account Debit Credit Cash 12,500 Interest expense 12,500 Interest expense 2,137 Premium.Bond Amortization Schedule Effective Interest Method June 17th, 2017Team You May Also Like Posted By: Team Tutorials Bonds Payable June 17, 2017.The credit is to bonds payable for 100,000 (87,590 12,410).Business, accounting, how to Account for Discounted Bonds.Each period, interest is charged on the opening book value of the bond at the market rate (12 so for example, in period 1 the interest is 241,337 x 12 x 6/12 14,480.You have to use two tables to figure this one out.The final bond accounting journal would be to repay the par value of the bond with cash.