【正文】 –cash amounts to be received (face value + contractual interest rate) –length of time until investor receives cash –by current market rate of interest PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 10 ACCOUNTING FOR BOND ISSUES ? Bonds may be issued –at face value –below face value (at a discount), or –above face value (at a premium) PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 11 LO2 Issuing bonds at face value Example – J Ltd issues 1000 10year 9% $1000 bonds at 100 (100% of face value) – Entry to record bond issue – Bonds payable are reported in noncurrent liabilities section of the statement of financial position because the maturity is more than one year away PowerPoint presentation 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。 Bond discount Number of interest periods LO9 54 55 Chapter 16: ? Questions , , , , , , ? , , , ? , , , ? , , ? , , Suggested questions to ensure your lecture understanding 。 Total debt Total assets = Times interest earned 247。 $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。1 Chapter 16 Noncurrent liabilities PowerPoint presentation by Dr Anne Abraham University of Western Sydney 169。 = $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