FA 41 - Bonds issued at a Discount

[@a_v___3444]

tony... ill prove you wrong and comment back on this video in 2116

[@Tony-Bell]

If you do, I will pin that comment!

[@a_v___3444]

@Tony-Bell say less brother!

[@the-jps]

I was thinking the same thing, see you here when that time comes, im placing it on my calendar as we speak

[@Fredjoe5]

I accept that challenge also. And I've made my preparations already 😁🥶

[@melissaolivares4782]

I'll say it again, I love the manner in which you teach, my brain just easily digests what you say to me. Maybe it's your comforting and guiding tone or the structure of your words and the meticulous placement of your words but I don't think I would feel as confident as I do in my accounting class now if you hadn't made these videos. Your teaching style makes me feel welcome and as though it's okay that I don't know. Thank you kindly. I appreciate you more than I could express.

[@Tony-Bell]

Thank you so much for this comment - really makes my day :)

[@420hannahbanana]

Honestly, I have watched 15 videos to try and understand this. I just wanted to thank you so much from a struggling student working remotely during Covid. You are a god-send!

[@abunaser18]

Thank you, dear Dr. Bell, Nice work in simplifying one of the hardest topics in Accounting.

[@liviakaral7665]

I've been trying to understand this topic for 2 weeks and although my Professor is a nice man, his explanations are quite complex and confusing. This helped me more than I can express. Thank you so much!

[@lelandglisson3392]

You’re an amazing teacher. I’ve abandoned my university’s course content and I’m learning from you on this topic. I appreciate what you are doing so much.

[@kevinfidler6287]

Excellent explanation! The table makes it very easy to understand how the calculations work.

[@IDotheNumbers]

I'd love to hear what you stuggled with the most while learning accounting, especially for the CPA exam. I'm just watching casually after graduating to reinforce the knowledge and it brings back so many memories (fingers crossed this balances)

[@Tony-Bell]

For me it wasn't a topic so much as discipline - it was a major grind it was hard to stay motivated! Kudos to you for going through it - I know it's challenging!!

[@IDotheNumbers]

@@Tony-Bell discipline is really the challenge, I mean other than Deferred tax assets and liabilities, those were a brain twister for me. 🤣

[@Tony-Bell]

@@IDotheNumbers 😆

[@michaeldwane4192]

I was confused at first but after watching the whole 30 minuites I think I'm really grasping the concept of bonds. thanks tony!

[@Cameron-g8n]

The template you provided in the workbook helped me understand it all a lot better!

[@ashleyhenriquez8429]

I went through your stuff before I started my degree program, I've ended every accounting class with > 100%. Thank you mucho

[@Bravokaylyn]

I have been struggling so bad in accounting, studying for my final now and found you! So upset it took me this long to find your videos

[@WorldWideSk8boarding]

Got my Intermediate Financial Accounting book in the mail today! Doesnt seem to have any journal entries and basic topics like that but I'm still finishing this series, I feel more confident diving into it with some grasp on the basics.

[@laurak2971]

You are the only reason I'm passing my accounting classes 😂

[@LoganManfredi]

Dear Anthony Bell, Sincerely, Logan Manfredi

[@Renee529]

Im struggling with this chapter and have my final exam on the 14th. Thank you for making discount/premium bonds easy to understand

[@tornfeather1]

I had to watch this one 3 times. I've never taken an accounting course or anything so just familiarizing with the terms and understanding the whys takes a little doing. Overall these videos are fun!

[@pubgmobileclashroyale4725]

Hello, Professor, 23:06, Can we write Interest exp in Aug 1 as Dividends in our journal entry?

[@Tony-Bell]

No - dividends are different from interest - bonds do not create dividends.

[@pubgmobileclashroyale4725]

@@Tony-Bell Ok, Thanks Teacher, Have a great day

[@troyster28]

"hahah freezing my brain in liquid nitrogen"- tony you silly goose you

[@MsMerkley]

I wish you were my actual professor

[@rodolfomaya9555]

This is great! Thanks! Could you make another one with the effects on CF statements?

[@User-xw6kd]

Thank you this is amazing. Really helpful.

[@YasserAbdelrahman95]

I have a big problem in understanding why we calculate at percent of market (92561*3% why?) we did this to calculate discount ? Why . i understood the technique but ignore reason .

[@medhavikosta3889]

as the bond was discounted because of the inflation in the market interest rate of bond. hence we calculate the market % as it was due to its inflation that the bonds were sold at a discount in the first place

[@ravercanada]

Linger issued 100,000 for 10 years paid semi-annually at 5% while market value is at 6%. calculate bond at a discount pv= FV/(1+r)^20, pv=FV/(1+.03)^20, Pv= 55,367.57 ( this represents the lumpsum that will be 100,000. * 55,367.57 (1.03^20)= 100,000) present value of interest= cashflow(1-(1+r)^-20/R , 2500(1-.5537)/R, = 37,193.63 ( this represents the present value of the interest that will be paid) the sum of 55.367.57+37,193.63=92,561.257 (this number represents the carrying value of the bond.) 100,000-92,561.257=7438.74 (that amount is the discount amortization) DATE Cash Interest Discount Carrying Value paid expense amor 01-Feb 92,561.26 01-Aug 2500 2776.83 276.83 92,838.10 01-Feb 2500 2,785.14 285.14 93,123.24 01-Aug 2500 2,793.70 293.70 93,416.94 01-Feb 2500 2,802.51 302.51 93,719.45 01-Aug 2500 2,811.58 311.58 94,031.03 01-Feb 2500 2,820.93 320.93 94,351.96 01-Aug 2500 2,830.56 330.56 94,682.52 01-Feb 2500 2,840.48 340.48 95,022.99 01-Aug 2500 2,850.69 350.69 95,373.68 01-Feb 2500 2,861.21 361.21 95,734.90 01-Aug 2500 2,872.05 372.05 96,106.94 01-Feb 2500 2,883.21 383.21 96,490.15 01-Aug 2500 2,894.70 394.70 96,884.85 01-Feb 2500 2,906.55 406.55 97,291.40 01-Aug 2500 2,918.74 418.74 97,710.14 01-Feb 2500 2,931.30 431.30 98,141.45 01-Aug 2500 2,944.24 444.24 98,585.69 01-Feb 2500 2,957.57 457.57 99,043.26 01-Aug 2500 2,971.30 471.30 99,514.56 01-Feb 2500 2,985.44 485.44 100,000.00 TOTAL 50000 57438.73 7438.73 conclusion: the leg work in getting the bonds out is set at 5% semi for 10 years face value 100,000. You can't change that now, but you can reduce the price or the issuance of bonds at a discount if the market offers better. Notice how interest expense covers cash paid and discount amortization. 01/Feb cash 92,561.26 (debit discount bonds payable when issuing bonds in the journal entry) Discount Bonds payable 7438.73 Bonds payable 100,000 01/Aug Interest expense 2776.83 discount amortization 276.83 (credit discount amortization every time you make a payment ) Cash 2500 ** if you like what I have shared please give TONY a thumbs up for all the great lessons he has provided.**

[@phillipdiaz1644]

Why do I have to use same interest expense, discount amortization etc dor fiscal year end Sep 30 and for second interest payment on Feb 1? Greetings from Germany

[@myanlul]

bc the calculation for feb 1 2025 includes calculation for sept 30th 2024 as well. so you would use the same expense, discount etc. (aug 1st to feb 1st = 6months. but you're trying to calculate for sept, so its aug and sept = 2months. )

[@arifiqbalkhan4706]

Professor, would it be correct to say, when we issue a Bond at a discount we debit cash and Discount to the Balance sheet? Thereafter wecamortize the discount amount over the tenor of the bond. Which would mean that the discount is an Asset. Though its part of non current liability...not sure if my question even makes sense...

[@Tony-Bell]

A discount is a “contra liability” - it reduces the obligation of the liability. You issue a $1,000 bond with a $50 discount. You get 950 cash. Your bond payable is 1000 and the discount on the bond is 50. Bond payable, net is 1000-50=950.

[@daynalujan3864]

Are there different methods do doing bond issued at discount? Do you have to use the chart you created?

[@Tony-Bell]

This is called the "effective interest rate method". There is also the "straight line method" but I don't cover it in my vids.

[@micky141]

Thank you so much for this!

[@noijay3359]

When writing journal entry. You put discount or premium with the interest expense and cash. Are the Discount and premium account a liability account or fall under gains or loss in the income statement?

[@Tony-Bell]

Discount and Premium add to the bond amount. So Bond - Discount = Bond, Net. Bond + premium = Bond, Net.

[@noijay3359]

Thanks

[@karnjitkingh]

I love your videos

[@andreaoyendong7971]

Very helpful. Thank you so much!

[@annie4969]

I’ve been wondering, why do we multiply by the market rate when calculating the interest expense?

[@Tony-Bell]

It's got to do with the discount or premium. When we issue the bonds, investors won't buy until they are receiving the market rate - so I issue a 100,000 4% bond when the market rate of interest is 6%. So they issue at a discount and I get 90,000. The extra 10K (the discount) is extra interest, meaning I pay back 6%. The size of the discount is dictated by the market rate. Sorry - I know it's a complex idea, and it's difficult to type out!

[@tyleryoung9095]

@@Tony-Bell Hi Tony, thanks for this video. It's slowly making sense. Question to this reply, how did you arrive at $90,000 being the amount that we receive at discount? Is this from the bond quote percentage like you mentioned in the video?

[@Fredjoe5]

I do hope the good Prof is serious about his intents to be back in 2116.

[@erabektashi1894]

you are my hero

[@PhuchtaornSJahn]

Thank you very much.

[@tiffanyt321]

Amazing video

[@opcomment]

THANK YOU!!!!

[@marcelaonofre8412]

hahahah I loved the part where you are going to freeze your brain!! Thank you for your explanations :)

[@jacknoonan2374]

What would I do if the problem I'm working on doesn't provide a bond quote? How would I figure out how much money ill actually receive?

[@Tony-Bell]

It ought to give you something. If it doesn't you may need to calculate it - it's fairly complicated - but I'm sure you can find a video tutorial - "Calculating bond price"

[@Faiaz_khan]

What did you say about the brain frozen thing?

[@sellllmore]

This is a though method to wrap my head around. I have a question. What happens with the Bonds payable account?

[@medhavikosta3889]

it decreases i.e debited and the cash is credited ( decreases) on making the payments for the promised bonds

[@BR.ssjwjjwfjfieiwwkwisjwjwjwds]

Bond payable will stay on your Balance until you paid it back. Like in MIT example, $500ml bond payable will stay as a liability for 110 years. MIT will be paying only interests on it. Your question was a year ago, I am sure you know it by now:)

[@nyza3565]

May someone pls tell me how could I find interest expense on sep30 if Idk market rate ?

[@franz2972]

Grüße an alle Leute von der Uni mannheim!

[@Tony-Bell]

Hello from Canada :)

[@franz2972]

@@Tony-Bell@Tony-Bell Thanks for all the Videos; you saved my whole university, and we even got you recommended by our official tutors. Much love to you from Germany

[@zaviermaguet3105]

I'm actually immortal Tony :)

[@WinSuccess-dh5ni]

👍

[@ruilongyang1822]

caroline 捏在看视频你也

[@Caro-zp7mx]

rui long Yang Haiya

[@oparachizoma1509]

😂😂 download all of your problems for ourselves? No thanks😂

[@Tony-Bell]

PLEASE! I've got LOTS of problems :)