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Lecture Documents Accounting - Investing IN Bonds

Lecture Documents Accounting - Investing IN Bonds
Course

Intro To Accounting (AC 210)

316 Documents
Students shared 316 documents in this course
Academic year: 2022/2023
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University of Alabama

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INVESTING IN BONDS

Bonds are debt securities issued by a company in the form of a promise to pay a certain amount of money (as stated in the bond nominal) in the future along with periodic interest payments. Bonds purchased by companies are not always obtained in accordance with their nominal value. Bonds can be obtained at a price above their nominal value or below their nominal value. But whatever the acquisition price of bonds, investment in bonds will be recorded at the acquisition price. The acquisition price of the bond is the total money issued by the company until the bond is in the hands of the company. The acquisition price includes the purchase price of bonds, notary fees, brokerage commissions, administrative and provision costs, and so on. If the bond is purchased below or above its nominal price, then the difference between the acquisition price and its nominal price must be amortized over the life of the bond because at maturity the company will receive money equal to its nominal value. If it is purchased below its face value, then each time the company receives interest income, the interest must be added to the amortization of the difference in the bond's acquisition price. Conversely, if the company buys the bond above its book value, then each time the company receives interest income, the interest must be reduced by amortizing the difference in the bond's purchase price. The following illustration may be able to clarify your understanding of listing long-term investments in bonds. On July 1, 2016, PT. Mitra Niaga purchased 2,000 bonds of PT. A on The Jakarta Stock Exchange. Bonds with a nominal value of Rp1, 000, 000 per share were purchased at a price

of Rp970, 000 per share. This 24% per annum interest-bearing bond is 2 years old and matures on July 1, 2014. Interest is paid every 6 months, that is, on June 30 and December 31. Based on these data and information, the required journals for 2 years of bond life are as follows: July 1, 2016 investment in cash bonds 1,940,000,000 1,940,000,000 the investment is recorded at the acquisition price, which is 2,000 pieces x Rp970, 000. = Rp1, 940, 000, 000. From the calculation, it can be seen that there is a difference between the nominal value and the acquisition price. - Nominal value = 2,000 x 1,000,000 = 2,000,000,000 - acquisition price = 2,000 x 970,000 = (1,940,000,000) - difference in profit = 60,000,000 - amortization difference= 60,000,000 : 2 years= 30,000,000 per year = 60,000,000 : 4 = 15,000,000 per interest payment December 31, 2016 cash investment in bonds interest income 240,000,000 15,000,000 255,000,000 such interest income is interest income for a period of 6 months. Because the bond interest rate is 24%, the amount of interest is = 6/12 x Rp2, 000, 000, 000 x 24% = Rp240, 000, 000. At the time of interest income of Rp240, 000, 000, the company also debited an investment account in bonds of Rp15, 000, 000. So, the same account occurs at the time of interest payment for the next period, namely June 30, 2013, December 31, 2013, and June 30, 2014. June 30, 2013 cash investment in bonds interest income 240,000,000 15,000,000 255,000,000 December 31, 2013 cash investment in bonds interest income 240,000,000 15,000, 255,000,000 June 30, 2014 Cash 240,000 investment in bonds interest income 15,000,000 255,000,000 in the Journal of recognition and recording of interest income, each time the company records interest income is always followed by

Mitra Niaga purchased 2,000 bonds of PT. A on the Indonesia Stock Exchange. Bonds with a nominal value of Rp1, 000, 000 per sheet ter call purchased at a price of Rp1, 030, 000 per sheet. The 24% per annum interest-bearing bond is 2 years old and matures on July 1, 2014. Interest is paid every 6 months, that is, on June 30 and December 31. Based on these data and information, the required Journal for 2 years of bond life is as follows. July 1, 2016 investment in cash bonds 2,080,000,000 2,080,000,000 - par value = 2,000 x 1,000,000 = 2,000,000,000 - acquisition price = 2,000 x 1,040,000 = (2,080,000,000) - difference in profit = 80,000,000 - amortization difference = 80,000,000 : 2 years = 40,000,000 per year = 80,000,000 : 4 =20,000,000 per interest payment December 31, 2016 cash investment in bonds interest income 240,000, 20,000,000 220,000,000 such interest income is interest income for a period of 6 months. Because the bond interest rate is 24%, the amount of interest is = 6/12 x Rp2, 000, 000, 000 x 24% = Rp240, 000, 000. When recognizing interest income of Rp240, 000, 000, the company also credits an investment in bonds of Rp20, 000, 000. So, the investment account in bonds in the general ledger will decrease its balance by Rp20, 000, 000. But it resulted in interest income that should amount to Rp 240,000,000 per six months, only Rp. 220.000,: (interest = Rp240. 000,000-Rp20, 000, 000 = Rp220, 000, 000). The same is true for the next period of interest payment, which is June 30, 2013, December 31, 2013, and June 30, 2014.

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Lecture Documents Accounting - Investing IN Bonds

Course: Intro To Accounting (AC 210)

316 Documents
Students shared 316 documents in this course

University: University of Alabama

Was this document helpful?
INVESTING IN BONDS
Bonds are debt securities issued by a company in the form of a promise to pay a
certain amount of money (as stated in the bond nominal) in the future along with
periodic interest payments. Bonds purchased by companies are not always
obtained in accordance with their nominal value. Bonds can be obtained at a price
above their nominal value or below their nominal value. But whatever the
acquisition price of bonds, investment in bonds will be recorded at the acquisition
price. The acquisition price of the bond is the total money issued by the company
until the bond is in the hands of the company. The acquisition price includes the
purchase price of bonds, notary fees, brokerage commissions, administrative and
provision costs, and so on. If the bond is purchased below or above its nominal
price, then the difference between the acquisition price and its nominal price must
be amortized over the life of the bond because at maturity the company will
receive money equal to its nominal value. If it is purchased below its face value,
then each time the company receives interest income, the interest must be added
to the amortization of the difference in the bond's acquisition price. Conversely, if
the company buys the bond above its book value, then each time the company
receives interest income, the interest must be reduced by amortizing the difference
in the bond's purchase price. The following illustration may be able to clarify your
understanding of listing long-term investments in bonds. On July 1, 2016, PT.
Mitra Niaga purchased 2,000 bonds of PT. A on The Jakarta Stock Exchange.
Bonds with a nominal value of Rp1, 000, 000 per share were purchased at a price

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