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CFA Level 1 - Journal Entries and Accounting Impact
JOURNAL ENTRIES AND ACCOUNTING IMPACT

We will now discuss the journal entries and accounting impact of bonds issued at par, a premium, or a discount.

The market value of a bond is calculated as follows:

Formula 9.1


Market value of a bond = PV of coupon payments + PV of principal

  • Par-value bonds
    Company ABC issues a $1m bond that will pay a 10% semiannual (coupon) for five years and similar bonds are paying 10%.

    Market value = $1m
    Face value or principal or book value = $1m

  • Bond issued at a Premium
    Company ABC issues a $1m bond that will pay a 11% semiannual (coupon) for five years and similar bonds are paying 10%. Bond premiums are amortized using straight-line depreciation.
     
  • Bond issued at a Discount
    Company ABC issues a $1m bond that will pay a 9% semiannual (coupon) for five years and similar bonds are paying 10%. Bond discounts are amortized using staring-line depreciation.



Next: CFA Level 1 - Total Interest Cost Components

Table of Contents
1) CFA Level 1 - Chapter 9: Liabilities
2) CFA Level 1 - Current Liability Basics
3) CFA Level 1 - Income Tax Terminology
4) CFA Level 1 - Tax Deferred Liabilities
5) CFA Level 1 - Permanent Vs. Temporary Items
6) CFA Level 1 - Adjustments To Financial Statemente From Tax Rate Changes
7) CFA Level 1 - Long-Term Liability Basics
8) CFA Level 1 - Journal Entries and Accounting Impact
9) CFA Level 1 - Total Interest Cost Components
10) CFA Level 1 - Reporting The Retirement Or Conversion of Bonds
11) CFA Level 1 - Accounting For Long-Term Liabilities
12) CFA Level 1 - Post-Retirement Obligations
13) CFA Level 1 - Effects Of Debt Issuance
14) CFA Level 1 - Implications Of Debt Issuance
15) CFA Level 1 - Effect Of Changing Interest Rate On Debt Market Value
16) CFA Level 1 - Capital And Operating Leases
17) CFA Level 1 - Effects Of Capital Vs. Operating Leases
18) CFA Level 1 - Determining The Value Of The Lease And The Lease Asset
19) CFA Level 1 - Sale And Leaseback
20) CFA Level 1 - Types Of Off-Balance-Sheet Financing
21) CFA Level 1 - Effects Of Off-Balance Sheet Financing Transactions On Financial Ratios
22) CFA Level 1 - Accounting For Leases
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