【正文】 n by Dr Anne Abraham, University of Western Sydney 12 Jul 1 Cash 1 000 000 Bonds Payable 1 000 000 (To record issue of bonds at face value) Issuing bonds at face value continued – Entry to record payment of bond (assuming no accrual of interest) – Adjusting entry to recognise interest incurred but not paid PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 13 Jun 30 Bond Interest Expense 45 000 Bond Interest Payable 45 000 (To accrue bond interest) Jan 1 Bond Interest Expense 45 000 Cash 45 000 (To record payment of bond interest) Discount or premium on bonds PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 14 Bond contractual interest rate 10% Issued when: 8% 10% 12% Premium Face Value Discount Market Rates Bonds Sell at: Issuing bonds at a discount Example – On 1 June 2020 Candlestick Ltd sells $100 000 5year 10% bonds for $92 639 – Interest payable 1 July and 1 January – Entry to record issue: PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 15 Jan 1 Cash 92 639 Unamortised discount 7 361 Bonds Payable 100 000 (To record sale of bonds at a discount) Issuing bonds at a discount continued ? Statement of financial position (partial) ? Total cost of borrowing PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 16 Noncurrent liabilities Bonds payable $100 000 Less: Unamortised discount 7 361 $92 639 Bonds issued at a discount Semiannual interest payments ($100 000 x 10% x 189。 = $5000。 $5000 x 10) $50 000 Add: Bond discount ($100 000 $92 639) 7 361 Total cost of borrowing $57 361 ? Balance sheet (end 1st yr) ? Balance sheet (end 2nd yr) Noncurrent liabilities Bonds payable $100 000 Less: Unamortised discount 4 $ 3rd yr, 4th yr, so on so forth ? Balance sheet (beginning 6th yr) Noncurrent liabilities Bonds payable $100 000 Less: Unamortised discount 0 $100 000 Noncurrent liabilities Bonds payable $100 000 Less: Unamortised discount 5 $ Issuing Bonds at a Discount (cont39。d) Issuing bonds at a premium Example – On 1 January 2020 Candlestick Ltd sells $100 000 5year 10% bonds for $108 111 – Interest payable on 1 July and 1 January – Entry to record issue: PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 18 Jan 1 Cash 108 111 Bonds Payable 100 000 Unamortised Premium 8 111 (To record sale of bonds at a premium) Issuing bonds at a premium continued ? Statement of financial position (partial) ? Total cost of borrowing PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 19 Noncurrent liabilities Bonds payable $100 000 Add: Unamortised premium 8 111 $108 111 Bonds issued at a premium Semiannual interest payments ($100 000 x 10% x 189。 = $5000。 $5000 x 10) $50 000 Less: Bond premium ($108 111 $100 000) 8 111 Total cost of borrowing $41 889 20 Class Ad hoc Exercise 1 Base on the Candlestick Ltd as example Please plete a 5 yr Balance Sheet (Non current liability section) with Bonds issued at premium of $8111 (based on straight line method) ? ref. to ppt slide 17 ACCOUNTING FOR BONDS RETIREMENTS Redeeming bonds at maturity ? Regardless of the issue price of bonds, the book value of the bonds at maturity will equal their face value PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 21 LO3 Redeeming bonds at maturity Example – Assuming that interest for last interest period is paid and recorded separately, entry to record redemption of Candlestick Ltd bonds at maturity is: PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 22 LO3 Jan 1 Bonds Payable 100 000 Cash 100 000 (To record redemption of bonds at maturity) Redeeming bonds before maturity ? An entity may decide to redeem bonds early to reduc