Amortizing a Bond Premium

Рет қаралды 173,617

10 жыл бұрын

This video explains how to account for bonds issued at a premium. An example is provided to illustrate how to calculate the bond proceeds, premium, interest expense, amortization of the bond premium, and the carrying value of the bonds.
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Пікірлер: 135

@juliajamir8137 5 жыл бұрын

Omg this is so much easier to understand than the Text books. Thank you so much.

@lazarlogantheboi4590 7 жыл бұрын

You are by far the best instructor I have ever come across!!! I only seek out your videos now! So many professors make the mistake of only showing how to do the steps in a problem, but fail to help students understand the whole picture. For instance, I've always wondered why a business would even bother calculating premiums or discounts if a new one can just be made. You explained why and it makes sense. Obviously, I've never had experience with debt securities and how they generally work. Those are the little things that I must know or it bugs me. :) Thank you for making all the videos! They are so well articulated and I enjoy watching them all! I absolutely love anything related to accounting.

@Edspira 7 жыл бұрын

Thank you for the kind words Alicia! Wonderful stories like this are what inspire me to make videos. I admire your hard work and diligence in learning the material, and I'm confident you will go on to a very successful career!

@syedrizvi5062 17 күн бұрын

Thank you for teaching with such a simplicity, best instructor you are.

@tiff653 2 жыл бұрын

Studying for the CPA exam and this was tripping me up. Great explanation.

@MyFinancialFocus 2 жыл бұрын

I haven’t made any money trading bonds yet but I’m definitely interested in getting started.

@SigmaLiving 3 жыл бұрын

My textbook completely ignored how to calculate the premium... Went straight to the schedule 😔 Thank you so much for this!

@davidsavage519 7 жыл бұрын

Thanks for the videos sir. The next generation of businesspeople will effectively be created by people like you.

@mansuramovlanova2887 Жыл бұрын

Thank you so much for the perfectly clear explanations! These videos are the first thing I am watching before even reading the textbook! I wish my professors also had a talent to explain accounting concepts this well!

@amyellison7328 4 жыл бұрын

When I'm totally stumped, I kick myself for not searching out your videos sooner. It always clicks.

@rando9103 3 жыл бұрын

Thanks for making this simple and concise. You did in 15 minutes what my teacher couldn't do in hours!

@Edspira 3 жыл бұрын

Glad it helped!

@MegaRabadaba 7 жыл бұрын

This is some excellent content. Thank you so much, I cannot fully express how much this helped me!

@pachoncebrantley254 7 жыл бұрын

Thanks! The explanation is simple and easy to follow.

@tempesmitty 4 жыл бұрын

Absolutely wonderful video and a great learning tool--thank you. There is one minor tweak to consider. At time 8:45 the credit is to "Premium" is $52,486. There is now an account in the company's accounting records called "Premium" with a credit balance. When the bond matures, the balance in the premium account should be zero since it will be amortized over the life. At time 12:15 there is a debit to an account called "Amort. Premium". To be 100% correct, the debit should be to an account called "Premium", which is the exact same account at 8:45. Therefore, the balance in the Premium account is reduced annually by the amortized premium until the balance in Premium is zero in the year the bond is matured. A T-Account for the Premium account clearly demonstrates this.

@jaylev85 Жыл бұрын

right. that makes sense, the ledger account is called "premium" but the +/- adjustment to both the Premium and BV account is called Prem Amort. Do you know if there is some type of distinguising difference between the Cash Carry Value and GAAP Book Value for this type of non callable bond?

@yeutruyen8146 2 жыл бұрын

Thank you so much. Im studying for EA exam. I love your videos and the way you explained. Finally I could understand it. Btw, your life story and mission are so inspiring. Once I am done raising my kids, I will give back to the world like you. Thanks for everything. Please post more videos. May the karma of your goodness come back to you with many more blessings in life.

@Edspira 2 жыл бұрын

Thank you for such a kind note. I hope you pass the EA exam! You sound like a great parent, and I bet your kids are proud of the hard work you are putting in to give them a good life!

@essamuhammad6393 2 жыл бұрын

brilliant explanation of bond amortization, BRILLIANT teacher, thanks allot

@Edspira 2 жыл бұрын

Wow, thank you so much!

@filly2150 5 жыл бұрын

Thank you for the well-explained video, definitely will help in my exam!

@bhagatsingh5019 8 жыл бұрын

Thank you for your all beautifully explained videos.

@alihamdan1058 2 жыл бұрын

Thank you so much for this, you really made simpler than i thought it would be.

@Edspira 2 жыл бұрын

You’re welcome 😊

@tarekalsherif57 5 жыл бұрын

Thank you so much for the amazing explaining!

@dcggil 6 жыл бұрын

Very good explanation! I have been watching your videos for ever. You explain things in detail and it makes so much more sense. Thanks!

@Edspira 6 жыл бұрын

Carolina Gomez, Thanks so much for watching the videos. Best of luck to you in your studies!

@lynxlynx79 5 жыл бұрын

Excellent video! Easy to understand

@cayapov Күн бұрын

You're amazing. Thank you so much for your videos!!!!

@vkrv3168 3 жыл бұрын

Hi Edspira, This is an excellent video content and helped to get clarity after 15 years of waiting. The way you explained the content is like a dad teaching his kid at the age of 1. Amazing! Keep up the good work and God bless you always.

@Edspira 3 жыл бұрын

Thank you for such a kind compliment!

@juanka96jv 4 жыл бұрын

You are amazing; My favorite professor!!

@Nott_Fifi 4 жыл бұрын

thank you for the very clear explanation!

@anthonymcmillon3817 3 жыл бұрын

Your explanation is precise. Thank you very much.

@khalilmohamed4034 5 жыл бұрын

very brilliant well explained this will gonna help me for my tomorrow exam

@traceyselig1579 8 жыл бұрын

Thank you for this video.

@slikslik313 8 жыл бұрын

Super well explained ! It couldn`t be better, Thank you a lot !

@Edspira 8 жыл бұрын

Thank you!

@brit411jc 7 ай бұрын

I wish you taught for Becker! Thank you for putting these videos together. They are so helpful!

@alassanekane4269 2 жыл бұрын

Much easier waw. You are a great teacher. I love the table

@yinyinyinyin520520 7 жыл бұрын

Thank you very much for this!

@ramcruz08 5 жыл бұрын

Thank you for this. Looking forward on how to retire a bond.

@ashleypupo155 5 жыл бұрын

Really great video! Thank you.

@user-wj7sr9bb1e Жыл бұрын

Edspira, you are the best, thank you so much for this !

@Edspira Жыл бұрын

No problem 😊

@johngino123 6 жыл бұрын

9 mins before my exam life saver my guy

@Ytremz 5 жыл бұрын

CFA?

@pacificreef6391 3 жыл бұрын

Thank you Professor!

@TheDaudi100 9 ай бұрын

Awesome presentation!

@muhammadadankhan1501 Жыл бұрын

God bless you. Thankyou this clears up all confusions. Cheers

@muhsineco1911 4 жыл бұрын

Present value of interest is still confusing. Can you explain that formula a little bit.

@vishwanthreddyreddy8768 4 жыл бұрын

very comprehensive explanation..

@tomneville6763 2 жыл бұрын

Absolute Legend. Thank you so much

@martingomez9705 6 жыл бұрын

Awesome, thank you so much

@sadafm8757 7 жыл бұрын

Perfectly explained thank you

@Edspira 7 жыл бұрын

Happy to help! Best wishes :)

@abdulmukhtor59 5 жыл бұрын

Thank you very much. It's been very helpful 🤓🤓🤓

@cjceej_2885 7 жыл бұрын

Life saver! This guy is awesome.

@Edspira 7 жыл бұрын

Thank you! I think hard-working students like you are awesome!

@katiemimoso7956 9 жыл бұрын

Great ! Thank you 😊

@yulduzjalilova4184 7 жыл бұрын

this is the best explanation thank you soo much !

@Edspira 7 жыл бұрын

Thank you for the kind words!

@zp33556784 8 жыл бұрын

This video was so helpful!!!

@Edspira 8 жыл бұрын

+Zaid Parekh Thanks!

@janyssamariaebuenafe-pana2993 3 жыл бұрын

Thank you so much!!!

@guilhermeal2170 6 жыл бұрын

Awesome !!! Thanks a lot mate !!

@arckimede2204 3 жыл бұрын

Great video, thanks a lot!

@Edspira 3 жыл бұрын

Glad you liked it!

@joepgoal 8 жыл бұрын

The best, Thank you !!

@Edspira 8 жыл бұрын

+Joepdj Thank you for the kind words!

@tarunnegi7642 7 жыл бұрын

Very simplified..thanks..

@Edspira 7 жыл бұрын

No problem! Take care :)

@bashiruk2123 4 жыл бұрын

Thank you it's much help

@alejandrodiaz2471 7 жыл бұрын

If I am not mistaken, you used the market rate both for the PV of Int payments and PV of Principal

@yoojinshin5782 5 жыл бұрын

Thank you for your video. Really helpful! But I still have a question. If the interest fees are paid semiannually, when I caluculate pv of principal, does it need to be 1000000/(1.07)^6 or 1000000/(1.035)^6?

@Clifffffffffford 6 жыл бұрын

Thanks !

@johnq3543 2 жыл бұрын

Thank you

@theoa126 7 жыл бұрын

Great video. Can I ask, what is the program you are using for instruction? It seems to be a common one. Thank you.

@alleycat1930 8 жыл бұрын

If the accounting period ended in between two payments, for example, middle of 2017, would you debit the premium on bond account in this case?

@sanfran224 6 жыл бұрын

you are my hero

@danielergas3067 4 жыл бұрын

you are saving my career

@FeralApparel 3 жыл бұрын

This is the best video. I am rescued.

@AlgSub22 5 жыл бұрын

Could you please explain me those second Present value formula that you are using ? I cant get it

@bloodblitzowns11 5 жыл бұрын

Quick question for anyone who may know but how does a semi annual payment affect the formula for PV of interest payments? Thank you.

@alanlee1994op 7 жыл бұрын

my idol, my lifesaver.

@froggo9k218 11 ай бұрын

THANKKKKK YOUU!!!!!!! GOD BLESS YOU GOOD SIR!!!!!!!!!!!

@Edspira 11 ай бұрын

Glad it helped!

@yuniorgalardy2781 6 жыл бұрын

Thank you!!!

@Edspira 6 жыл бұрын

No problem.

@AD2360 9 жыл бұрын

thanks

@Matti_us_Alpe Жыл бұрын

@Edspira You mentioned "Cash Paid" and then we see "Interest Expense". May I ask what do we in the Income Statement and Cash Flow Statement from Financial Activities?

@yohannesburaka1164 8 жыл бұрын

Tank you very much now I am ok to do my home work

@reyruiz7763 2 жыл бұрын

Wow thanks. If my profesor be theaching like you everyone got just A all the time👍

@TruePromise 7 жыл бұрын

THANK YOU KEEP GOING

@Edspira 7 жыл бұрын

Will do!

@waffle2489 8 жыл бұрын

Sir, what if the amount paid isn't given? I knew it before but im kinda lost. We have a bsnssmath subject. And i need to know it now bc we have a quiz tomorrow sir please help me.

@brightmind5345 7 жыл бұрын

Hey Michael .. you mean about the carrying value of the bond is the bond face/par value plus the premium ? because i supose that the bond T account will only content the 1MIL at the beginning of the transaction ? and how it will be presented at the balance sheet bond and premium saperated or combined ? .. thanks for the video man.

@Edspira 7 жыл бұрын

You are absolutely correct! The carrying value is the face value of the bond (the amount to be repaid when the bond matures) plus any unamortized premium (if the bond was issued at a discount, it would be the face value minus any unamortized discount). Many accounting textbooks show the unamortized discount or premium separately from the bond payable on the balance sheet, although many firms just show the net amount on their actual balance sheet

@Larry821 Жыл бұрын

Interesting. Exactly the same calculations as for an ordinary annuity of 3 payments of 90,000 and a balloon payment of 1,000,000. Inputting 7% and solving for PV with a financial calculator produces the initial carrying value and you can use the calulator's amortization function for the amortization schedule as well.

@joy-aislingmolelekwa2024 3 жыл бұрын

Hey guys I need help... how do I account for a premiums of redeemable bond when calculating WACC? What method do I use? Irr or hawinini

@zacharyrhodes5157 2 жыл бұрын

Is this considered the effective interest method?

@baneblade48 3 жыл бұрын

In the PV of interest payments, is it always multiplied by the annual interest (90,000) or by whatever the period is? (semiannual, quarterly)

@baneblade48 3 жыл бұрын

I keep getting a negative number when calculating the PV of Interest too.

@waffle2489 8 жыл бұрын

Sir when it says annually, it means that you use single payment right since annually means it should be payed once because annually = 1. But then when it says semi annually it means its payed twice and yet the formula to be use (annuity due or ordinary annuity) is based on a phrase stated either "at the end" for the ordinary annuity and "due of the date" for the annuity due.

@waffle2489 8 жыл бұрын

Please correct me sir if im wrong.

@skye9984 4 жыл бұрын

My savior

@Mimmivs93 7 жыл бұрын

What happens if the market interest rate changes? Do we still use the 7% or do we calculate a new carrying value for the bond?

@oluwaseunsorinola7039 6 жыл бұрын

Someone should please answer this

@chaitraa419 6 жыл бұрын

based on market interest you get to know whether it is trading at a discount or at a premium.. if stated rate is equal to market rate, the bond is trading at par.. if the stated is more than market rate, the bond is trading at a premium.. if the stated rate is less than market rate, the bond is trading at a discount.. hope it helps.. :)

@vivekbuddhbhatti 6 жыл бұрын

I guess we still use the market interest rate @ the issuance i. e. 7% here

@TuanNguyen-ej1ze 4 жыл бұрын

What happen if market interest rate increase from 7% to 8% at Beginning of year 3th (Jan 1, 2020)? Do we still using 7% market interest rate to calculate the bond interest expense for year 3th?

@jaylev85 Жыл бұрын

Hey. Short Answer Yes. Great question! At first I was thinking that as well. Pretty sure since the 7% rate is the yield at issue and that's the only rate that determines the fair market value at issue, we should carry forward that 7% rate for determining the premium amort schedule. On other hand, the current market yield (in your example 8%) at a particular time T probably would be used to determine a market value at time T ( i.e. at time 3, if market yield was now like 8% or something, I guess the difference between between the amortized carry value and the market value would be an unrealized gain/loss) I believe the carry value is essentially like Par, in the fact that it's a unitized value based only on price at issue, hence the need to amortize it back to PAR. For example, book value and market value are also calculated in a schedule but they would roll down based off of whatever the book yields and market yields would be. My confusion has always been what's the difference between the book Yield and this 7% market rate at issue. I'm also aware market yields certainly change over time. I believe the book yields can change but only if there is activity like principle paydown, prepay risk, impairment, etc. This is why the book value is sometimes different than the carry value.

@tylerx8848 2 жыл бұрын

I don't get this. So for period 1 wouldn't the total expense be the sum of the interest expense and the cash payout. I guess i am missing the concept. Is the amortization an income??

@Ytremz 5 жыл бұрын

_(Mississippi accent)_ Much obliged.

@bcnicholas123 4 жыл бұрын

Where does the Premium account fit on the balance sheet?

@GinaJacobson 4 жыл бұрын

Is the issuer receiving the "proceeds" from the bond? Is the issuer making money off of the bond? If so, I might just start issuing bonds at a premium (if all goes well).

@deexero 2 жыл бұрын

whats the point of college anymore? Thank you Edspira.

@Edspira 2 жыл бұрын

No problem!

@AndreaOwen17 4 жыл бұрын

If we weren't given the "102" how would we calculate so that we can get the 102

@jaylev85 Жыл бұрын

its the PV of CFs using 7% market rate at issue

@001looker 3 жыл бұрын

I got my EA>CPA and no need to do schooling.

@juuuuun321 3 жыл бұрын

damn, simply, if market rate is higher, then it is a discount and if the stated rate is higher, then it is a premium, why my professor explained it in a more difficult way ti understand

@cascam1 6 жыл бұрын

Michael never divulges why we use the market rate when calculating PV principal and PV interest payments. :-(

@Edspira 6 жыл бұрын

The stated rate is only used to determine the interest payments. When you are calculating the present value, you want to use the market rate. You are basically converting the bond to the current market rate, so you want to calculate the actual value of the interest payments and principal using the market rate.

@dfggdp8384 6 жыл бұрын

yes, but you used the stated rate for both the calculations of pv principle and pv interest in the video

@jaylev85 Жыл бұрын

not sure what "stated rate" is. there is a coupon rate of 9% and the market rate is 7% in this example...it represents a market consistent benchmark rate for this particular issuers credit risk by soverign, geography, industry and rating and the term of the bond. when cashflows are discounted at a market consistent rate the sum of those cashflows can be refered to as the arbitrage-free "Fair Market Value" which he's calling the PV of the bond.

@MWmDGC 4 жыл бұрын

The first time in my life I get bonds.

@travispace6658 4 жыл бұрын

whole lotta red on my test

@pbr8316 5 жыл бұрын

sometimes i wonder why schools try to overcomplicate material. If you can't explain something to a 5 year old, it means you don't understand it well enough. Thank you! The concept is so simple, if you're paying higher stated interest, you should get more cash . If you're paying less interest *because it was too bothersome to match stated rate to market rate*, you should get less cash.