{"id":848,"date":"2015-05-13T18:28:06","date_gmt":"2015-05-13T18:28:06","guid":{"rendered":"https:\/\/courses.candelalearning.com\/finacct2x10xmaster\/?post_type=chapter&p=848"},"modified":"2015-06-04T22:01:16","modified_gmt":"2015-06-04T22:01:16","slug":"accounting-for-investment-in-bonds","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/clinton-finaccounting\/chapter\/accounting-for-investment-in-bonds\/","title":{"raw":"Accounting for Investment in Bonds","rendered":"Accounting for Investment in Bonds"},"content":{"raw":"We will look at a similar topic but this time we, as a corporation, are purchasing bonds of another company.\u00a0 We will not have a liability because we are the ones purchasing the bond or loaning the money.\u00a0 We record this as an asset called Investment in Bonds.\r\n\r\nI found 2 good videos that would work -- which do you prefer??<\/span>\r\n\r\nhttps:\/\/youtu.be\/l9Q5qvYf2LI\r\n\r\nOR<\/span>\r\n\r\nhttps:\/\/youtu.be\/FCs1lSWa38g\r\n\r\nLet's look at another discount example.\u00a0 Assume we purchase $50,000 in bonds of ABC Corporation for $45,000 cash.\u00a0 The bonds have a stated interest rate of 10% paid semi-annually\u00a0and the bond matures in 5 years.\r\n\r\nTo record the purchase of these bonds, we record the amount we actually paid for the bonds (we do not use discount or premium accounts):\r\n\r\n\r\n\r\n\r\n\r\n\r\n
<\/td>\r\nDebit<\/td>\r\nCredit<\/td>\r\n<\/tr>\r\n
Investment in Bonds<\/td>\r\n45,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
\u00a0\u00a0 Cash<\/td>\r\n<\/td>\r\n45,000<\/td>\r\n<\/tr>\r\n
To record purchase of ABC company bonds for cash.<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nTo record receipt of the semi-annual interest payment, we record the receipt of cash interest AND we capitalize the difference between the bond face value $50,000 and the amount we paid $45,000 of $5,000 over the life of the bond using straight-line amortization.\u00a0 The entry would be:\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
<\/td>\r\nDebit<\/td>\r\nCredit<\/td>\r\n<\/tr>\r\n
Cash (50,000 x 10% x 6 months \/ 12 months)<\/td>\r\n2,500<\/td>\r\n<\/td>\r\n<\/tr>\r\n
\u00a0\u00a0 Interest Revenue<\/td>\r\n<\/td>\r\n2,500<\/td>\r\n<\/tr>\r\n
To record bond interest received.<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Investment in Bonds ($5,000 \/ 10 interest payments)<\/td>\r\n500<\/td>\r\n<\/td>\r\n<\/tr>\r\n
\u00a0\u00a0 Interest Revenue<\/td>\r\n<\/td>\r\n500<\/td>\r\n<\/tr>\r\n
To record capitalization of bond premium.<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nThis entry would be made every 6-months for 10 interest payments.\u00a0 At the end of 10 interest payments, Investment in Bonds account would be equal to the bond face value of $50,000.\u00a0 The entry to record receipt of the bond amount at maturity would be:\r\n\r\n\r\n\r\n\r\n\r\n\r\n
<\/td>\r\nDebit<\/td>\r\nCredit<\/td>\r\n<\/tr>\r\n
Cash<\/td>\r\n50,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
\u00a0\u00a0 Investment in Bonds<\/td>\r\n<\/td>\r\n50,000<\/td>\r\n<\/tr>\r\n
To record receipt of bond at maturity.<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nIf we pay a higher price for the bonds than the bond face amount, the entries would be the same except we would Debit Interest Revenue and Credit Investment in Bonds with each interest payment.","rendered":"

We will look at a similar topic but this time we, as a corporation, are purchasing bonds of another company.\u00a0 We will not have a liability because we are the ones purchasing the bond or loaning the money.\u00a0 We record this as an asset called Investment in Bonds.<\/p>\n

I found 2 good videos that would work — which do you prefer??<\/span><\/p>\n