Principles of Financial Accounting · free preview
Journal Entries across the Bond Life Cycle
A bond passes through issuance at par, discount, or premium, periodic interest with amortization, and retirement at maturity or early, and each event carries its own standard journal entries built from the amortization schedule.
1. Issuance entries
Issuance entries
2. Periodic interest entries
Periodic interest entries
3. Retirement at maturity
Retirement at maturity
4. Early retirement
Early retirement
5. Discount issuance entry
A 1,000,000 dollar bond is issued for 877,000 dollars. Which entry records issuance?
6. Periodic entry with discount amortization
The first year's schedule shows interest expense of 87,700 dollars, cash coupon of 80,000 dollars, and discount amortization of 7,700 dollars. Which entry posts?
7. Maturity retirement entry
At maturity, the discounted bond reaches carrying value of exactly 1,000,000 dollars. Which entry retires it?
8. Early retirement gain or loss
A bond with carrying value 950,000 dollars is repurchased for 960,000 dollars. What is the result?
9. Year one carrying value
A bond issued at 877,000 dollars amortizes 7,700 dollars of discount in year one. Compute year-end carrying value in dollars, number only.
10. Retirement cash outflow classification
Repayment of bond principal at maturity appears on the statement of cash flows in which section? One word.
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