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.
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With Every good Wish for your Happiness this wonderful Season and coming New Year!
Aprajita
