Issuance of Bonds Journal Entry - Lesson 1 - YouTube

Okay now hopefully bonds are starting to make a little bit of sense. Let's continue on

you'll see here journal entry issuance and we're talking

big and accrued interest so what I'm gonna do them to get the permit anything

and everything they ever test you on

they don't use the test this much in it but I'm gonna give it all to you just so

we're having a good time

now as we go through this are certain things that fall into our journal entry

and here's what we're gonna look at and I'm gonna make it like a one two three

four

and then we'll go through the details so here's what our journal entry will

basically look like

will have a war on tune

to 3G for our

bomb I've or 5

mmm barry tasting now

morning by for senior credit bonds payable

and that's because you always know what bond payable is

hit bonds payable for the face amount the second thing we may have is called

accrued interest payable and this is something that

is not tested on every exam but it does periodically show up

so this is gonna be an amount for accrued interest that we're gonna have

that we may end up needing

in order to figure out what is are a cutie accrued interest

and this is for interest that occurs between

interest dates so what that means is let's see how I'm gonna pay you

interest but the problem is a certain amount of time is already gone by

so here for example is the time right here's our time

and let's say for example we are looking at

you know if you bought the bond on January 1st and at December 31st

I'm gonna owe you what I'm an OU 1212 to the year

okay not a problem said the end I owe you what a million eight-percent eighty

grand

some 200 you eighty thousand bucks but let's say you bought it here

on April 1st April Fools Day april fools a low

April polls so how much time has gone by

January and you're allowed to bring your fingers to the exam January February

March 31st

three months so there's nine months lap some now

at the end of the year you're gonna still pay me how much you're still gonna

pay me

eighty thousand bucks wide because it's way too much work at the end of the year

to go okay

you by JR who's your eighty you bought it when April 1st at three quarters

here's your sixty

you but when till I first that happy year here's forty

way too much work so here's what I'll do instead all Jack

that accrued interest into the purchase price and then at the end of the year I

can just give everybody

80 80 80

80 80 80 80 I'll so with accrued interest what all say as

you're buying it here how much time is already been accrued

3 12's or one corner so I'm gonna say

Okur me a quarter a baby or 20 bucks then at the end I'm gonna pay you

eighty what did you really earned you've really earned

eighty minus the twenty you burn 60 which is from here to here

make sense let's say you buy it on July 1st

then happy years gone by all charge you 40

at the end I pay you 80 what did you aren't 40

cell for me I'm gonna get that money up front

let's just say it was whatever 60 bucks so I would credit accrued interest

payable 60 because that the liability

but I'm also gonna have some cash and that cash would go

right here as sixty so I basically get a cash

credit accrued interest payable then at the end of the year accrued interest

payable

and I'll give you the 80 bucks somebody give you 80 the accrued interest payable

sixty a bit was money

that you paid me up front see you really only earning whatever the difference is

20 bucks

so my real interest expense is only 29 E why because 68 you prepaid

so again that's called accrued interest payable that's what we're looking at as

far as the amounts

so again I want you to kind understand the accrued interest payable

as far as what the amount is how it fits in and how it all ties together

so that's a really important concept as far as accrued interest payable

then what we're gonna have a debit cash now the deputy cash

that's gonna be either for what we call the present value remember way over here

well we calculated the present value of nine hundred and twenty four thousand

280

so that would be either the present value or

remember I said they say the bonds were issued 101 or 98

101 percent 98 so whatever that is that so much cash on a charge you

so I'm gonna put here percent I'm face or

your present value calculation plus

on an ad in the accrued interest which you just paid me up front

mine is something called the BIC and this big

is called bond issue cost that I'm gonna set up

as basically a deferred charges

charge basically it's a tougher charred or its gonna be

in a sense a non-current assets and an expense that i'm gonna amortize

over the life of the bonds and with your bond issue cost if you turn the page

you'll see it talks about accrued interest payable on to give you an

example there's you can kinda play with at work through it I also include bond

issue costs bic

but bond issue cost you gonna take these and you're gonna amortize them

straight-line over the period that the bonds are outstanding

so the period that the bonds are outstanding

now this is important let's say they're five-year bond how many months is five

years five times 1260

but let's say I don't issue the bonds for three months

how long the bonds outstanding sixty -3

57 I would then amortize them over fifty seven months

so it's the period at the Montreux outstanding what is included in there

if they ever ask you it's usually d all of the above but what's included

printing in grading

legal accounting underwriter commissions

promotion costs like printing the perspectives to get people to buy the

bonds

all of those who consider bond issue cost and again we're gonna amortize them

over the life the bonds the period that the bonds

are outstanding so again straight line over the period the time that the bonds

are outstanding

that's the way that we're gonna amortize those out that is called your bond issue

cost so as we look at the calculation again you'll see it

credit bonds payable for phase credit accrued interest payable

get a cash and then you get to pick which were gonna amortized over the life

of the bonds

now at this point we have applied what is your plug

it the debit it's a discount emits a credit

it's a premium so discount or premium that's going to be the plug

so one more time credit bonds payable for face credit accrued interest which

they don't usually task get a cash

David Beck different is the discount a premium