the bond with cash. The effective interest method involves preparing a bond amortization schedule to calculate the interest expense based on the market rate at the time the bond was issued and the bonds book value. To calculate the interest payment on a bond, look at the bonds face value and the coupon rate, or interest rate, at the time it was issued. For example, in period 1, the posting of the actual interest paid and the premium amortization shown in the bond amortization schedule is as follows: Bond amortization schedule period 1 journal entry Account Debit Credit Cash 12,500 Interest expense 12,500 Interest expense 2,137 Premium. Bonds Payable Issued at a Premium. I am trying yo learn quantlib (1.3) python bindings using quantlib-swig (1.2) in ubuntu.04. The coupon rate may also be called the face, nominal, or contractual interest rate. Course 208: Next: The Quiz Learn how to invest like a pro with Morningstars Investment Workbooks (John Wiley Sons, 2004, 2005 available at online bookstores.
This leaves a ending balance which is the amope coupon rite aid book value of the bond carried forward to the next period. Feb 28, 2006; Aug 31, 2006. From the bond amortization schedule, we can see that at the end of period 4, the ending book value of the bond is reduced to 250,000, and the premium on bonds payable (9,075) has been amortized to interest expense. Suppose, for example, a business issued 10 2-year bonds payable with a par value of 250,000 and semi-annual payments, in return for cash of 259,075 representing a market rate. Bonds payable are issued by a business to raise finance. Bonds Payable Issued at a Discount Suppose, for example, a business issued 10 2-year bonds payable with a par value of 250,000 and semi-annual payments, in return for cash of 241,337 representing a market rate. An example will help to make matters clearer. In effect, because the bonds were issued at a premium and the business received more cash than the par value of the bonds, the cost (interest) to the business is reduced each period by the amount of the premium amortized. Multiply the bonds face value by the coupon interest rate to get the annual interest paid. In effect, because the bonds were issued at a discount and the business received less cash than the par value of the bonds, the cost (interest) to the business is increased each period by the amount of the bond discount amortization. The advantage of the effective rate method and the bond amortization schedule, is that the interest expense for the period reflects the book value of the bonds, in the case of a bonds issued at a premium, as the bond book value reduces towards the. Each period, interest is charged on the opening book value of the bond at the market rate (12 so for example, in period 1 the interest is 241,337 x 12 x 6/12 14,480.
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