[Bookkeeping Study Notes] Basic Knowledge of Corporate Bonds ①-② - Accounting for Straight Bonds and Year-End Valuation
🔹 Knowledge Point ①: Issuance and Processing of Straight Bonds
✅ 1. Three Patterns of Issuance
📘 Tips for memorization:
Discount = Selling at a lower price (yield becomes higher)
Premium = Selling at a higher price (advantageous for the company)
Par = Simply at face value
✅ 2. Flow of Accounting Processing (Journal Entries)
① At issuance
Dr: Cash and Deposits Cr: Corporate Bonds② At interest payment
Dr: Interest Expense on Bonds Cr: Cash and Deposits
*Calculation formula: Face value × Coupon rate × Months/12③ At maturity redemption
Dr: Corporate Bonds Cr: Cash and Deposits
🔹 Knowledge Point ②: Year-End Valuation of Corporate Bonds (Two Methods)
✅ Method ①: Interest Method (Amortization using effective interest rate)
Interest Expense on Bonds = Book value of corporate bonds × Effective interest rate
Cash and Deposits = Face value × Coupon rate
Amortization amount (Corporate Bonds) = Interest Expense on Bonds - Cash and Deposits
→ Dr: Interest Expense on Bonds Cr: Cash and Deposits, Corporate Bonds
📌 A method of transferring the amortization amount to corporate bonds based on the effective interest rate.
✅ Method ②: Straight-Line Method (Equal amortization)
At interest payment
Dr: Interest Expense on Bonds Cr: Cash and Deposits
(Face value × Coupon rate)Amortization entry at closing
Dr: Interest Expense on Bonds Cr: Corporate Bonds
(Corporate bond amount - Paid-in amount) × Months in current period / Total period months
📌 A simple method of dividing the amortization amount equally and allocating it over the period.
📝 Summary Points
Discount issuance or premium issuance = Amortization required!
In practice, interest method > straight-line method is more common, but both are subject to examination.
The straight-line method is easier to calculate, but be careful with managing the number of months from the issuance date to the maturity date!