Continuing from my last post on "Effective Interest Method", I am going to call attention to the journal entries in the books of issuer and investor.
Note:- The issuer's books will always reflect bond premium or discount account but the investor's books illustrate the bond investment amount all inclusive (no discount or premium account).
Given below are the facts of the case for which I have charted the interest amortization table and its related journal entries. Please use the link below to view the file.
Facts of the case
On Jan 2, 2008, a $1,000 face value, 2 year bond with a 10% coupon rate of interest is issued for 104. The market rate of interest is 7.75%. Interest is payable annually.
On Jan 2, 2008, a $1,000 face value, 2 year bond with a 10% coupon rate of interest is issued for 104. The market rate of interest is 7.75%. Interest is payable annually.
http://www.docstoc.com/docs/21196042/Interest-Amortization
This was a simple exercise but the rules of the game remain the same even for extensive problems. The key is to remember the timing of interest payments.
I must admit you continue to be my strength and motivation and that brings out the best in me.
With Every good Wish for your Happiness this wonderful Season and coming New Year!
Aprajita
Hi Aprajita, I am a regular reader of your blog and have become a fan of your writing style. You have a knack of putting the complex matters into very simple terms and discussion. If you get a chance to discuss the hedging transactions that will greatly help me in my studies.
ReplyDeleteThanks for writing this blog.
Wish you all the best.
Tony
Thanks a ton Tony for reading and appreciating my blog.
ReplyDeleteWhile preparing for the exam, it was tough for me too to break the topic in a lucid form, and involved a lot my of time and effort. It is for this reason I started to write.
I intend to cover lot of topics including hedging transactions. Currently I want to finish off topics related to what I have been writing and then move to the next one.
So continue to remain with me.....
Wish you a very Happy and Prosperous New Year!