divya you mentione in one of your post that the "trick" of bonds is knowing the j/e's and something else. 

Can you elaborate?  perhaps a hint/shorcut/idea. I have put enormous amount of hours in bonds and I am not there yet. I am to the point of "knowing-memorizing" the answers due to so many repetition. :(  

utesa wrote: divya you mentione in one of your post that the "trick" of bonds is knowing the j/e's and something else.  Can you elaborate?  perhaps a hint/shorcut/idea. I have put enormous amount of hours in bonds and I am not there yet. I am to the point of "knowing-memorizing" the answers due to so many repetition. :(

Hi utesa, let me try my best to summarize the way I dealt with bonds:-

I usually asked myself following questions in any bond related question when I was doing my review for practice. At the end of your review, you would realize that you don’t have to ask yourself all questions as you would be quite comfortable with this topic.

1.)   Was the bond sold b/w interest dates? If yes, it is crucial to know this as company collects interest payable for the period from the last interest payment date and adds to the issue price of the bond. This info is usually provided in the question. This interest is reimbursed back to the investor at the time of next interest payment date.

2.)   For how much period, bonds are outstanding? The bonds could be dated Jan 1, but sold on April 1. This is important as any discount/premium and bond issue costs are amortized only for the period the bonds are outstanding. (date of sale till date of maturity)

3.)  What’s the initial journal entry for recording of bonds payable in borrower as well as investor’s books? This would help in calculating the premium/discount and carrying value of the bonds. Is the question asked in the exam from a borrower’s or investor’s view point?

4.)  You would know the premium/discount on the bonds, bond issue costs by now. Now, what is going to be the amortization table? Believe me, when I was able to prepare this table (for relevant periods asked in the question), my hold on the topic increased.

           Key points for the amortization table:-

a.)   Is the interest paid annually or semi-annually? Your interest as well as amortization calculation would be dependent on this because usually the annual interest rate is provided in the question.

b.)   What is the method of discount/premium amortization? Is it straight line or effective interest method?

c.)   Straight-line method:-

     -- Periodic Amortization = Premium or discount

                                                     No of periods bond is outstanding

     -- Interest expense (IS) = (Face Value * Stated Interest Rate) minus premium amortization or plus discount amortization.

d.)   Effective Interest method:-

-- Periodic Amortization = Interest expense – Interest Paid

-- Interest expense (IS) = Net carrying value * Effective Interest Rate

Note: - Interest Payable/Paid (BS) is always = Face Value x Stated Interest/Coupon Rate be it straight-line method or effective interest method.

5.)  What would be the JEs for the relevant period asked in the question on the basis of the above amortization table? Write down the JEs for your practice. It would help you tremendously.

6.)  Remember, at the end of maturity period – face value is paid back to the investor. Thus, refer graph on page F5-47 from Becker. By now, the JEs you must have prepared would best explain the CV in bonds payable account and how it is adjusted (brought up/ brought down) to the face value at the end of maturity period.

                    Honestly speaking, all the above steps made a solid base for any questions related to bonds in the exam.

Then, I did the other minor topics like sinking fund, serial funds, retirement of bonds and most importantly, convertible bonds.

If you know how to correctly compute the carrying value and the amortization, I am sure you would then be pretty confident with this topic.

Do let me know in case of any specific issues. I would be more than glad to help J

Good Luck !

Thanks very much divya.  This really helps, I do know some of the topics  (I think) but now the way you divided helps me to sort things out better specially what to look for in the mcq's.     Sometimes I am in front of a question and honestly I get lost in what information I should use to answer the question asked. 

this will definitly clear up my doubts.

Again thank you....  :)