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Issuance of Bonds Journal Entry - Lesson 3

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In the video, 11.03 - Issuance of Bonds Journal Entry – Lesson 3, Roger Philipp, CPA, CGMA, gives a full demonstration of the inner workings of the effective interest method for amortizing bond discount or bond premium. Working through the $1 million 10% yield, 8% coupon bond example, Roger first reviews the 5-step journal entry at issuance described in Lessons 1 and 2. Then he provides the steps for the effective interest method with a bond discount and then explains the steps for a bond premium, explaining the concepts and journal entries along the way. You will also learn to use the effective interest rate to calculate interest expense, and the coupon rate to calculate the cash payment, which is always the same. Interest expense changes with each coupon payment. As carrying value increases with a discount bond, interest expense increases. As carrying value decreases with a premium bond, interest expense decreases. Over the term of a discount bond the discount will be amortized until the carrying value is increased up to the face value of the bond. Over the term of a premium bond the premium will be amortized until the carrying value is decreased to the face value of the bond. Over the terms of both discount and premium bonds, the amortization amount of either the discount or premium increases over the life of the bond. Roger’s table and demonstration make these concepts and relationships very clear. Website: https://www.rogercpareview.com Blog: https://www.rogercpareview.com/blog Facebook: https://www.facebook.com/RogerCPAReview Twitter: https://twitter.com/rogercpareview LinkedIn: https://www.linkedin.com/company/roger-cpa-review Are you accounting faculty looking for FREE CPA Exam resources in the classroom? Visit our Professor Resource Center: https://www.rogercpareview.com/professor-resource-center/ Video Transcript Sneak Peek: Let’s go through, and what we're going to do, is we're going to go through and do our example that we did earlier, which is five year term bond, a million dollars, and we'll go through doing both of these discounted premiums. So the way percent stated, issued at 10. Eight percent stated, issued at six. And then we'll go through, and do the effective interest table. Now, my numbers aren't going to be exact, because I kind of want to make it a little bit easier for me to get through the calculations. But you'll see how it works. So we're going to set up our amortization table, which has the face, plus or minus, and we're going to have plus or minus our premium, or discount, that equals your carrying value. Times, the effective interest rate.
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Text Comments (2)
Jordan Laterreur (6 months ago)
Roger, you are fantastic. Your teaching style is so much fun and keeps my attention the whole time!
Roger CPA Review (6 months ago)
Thanks Jordan! That's definitely what we aim to do. Happy studying!

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