 Hello and welcome to the session in which we would look at bonds issued or sold between interest payments or interest date What is the main idea? Well interest is paid periodically on a specified date to the holder So what does that mean? So let's assume the interest is paid on July 1st So whoever holds the bond July 1st will get the interest payment What happened if someone carries the bond from January till March? Then in March on March 1st, they sold the bond. So John sold the bond to Paul Well, John will give the bond to Paul as of March 1st and Paul will receive the full amount Why because as far as the corporation is concerned whoever holds the bond on July 1st will go will get the full interest What's gonna happen is this Paul will have to pay John Any amount of interest accrued from January till March So the buyer should pay the seller the interest accrued from the last interest payment We're assuming the first interest payment was January till that date So the purchaser would receive the full month worth of interest and the purchaser will be made whole when the company Pays the full interest now the best way to illustrate this is to take a look at an example And here we're gonna assume that a corporation is issuing the bond other than the dated bond on March 1st Adam corporation issues 10-year bond dated January 1st X1 With a par value of a million so notice it's dated January 1st. They did not issue it till March 1st So whoever buys the bond missed January and February Interest value who holds that interest while the company was holding the bond Technically the company will pay doesn't pay itself, but they save themselves those two month These bond have an annual interest of 6% paid semi-annually January and July so on a timeline they sold it in March First so whoever carries the bond will get interest for four month period So let's take a look at the journal entry. How much cash will the company receive? Well, the company will receive two amounts the company would receive the full amount plus they would receive a million dollar times six percent times To divided by 12 and that's gonna give us an additional $10,000 the bonds are a million dollar and they should they should be credit for a million dollar And we're gonna credit interest expense some companies credit interest payable for the ten thousand dollar Now when we make the interest payment on July 1st, the company will debit interest expense thirty thousand they will credit cash Thirty thousand why would they debit? Interest expense thirty thousand. Well, that's fine. Although they debited interest expense on July 1st 30,000 If you notice that we debited interest expense 30,000 we credited interest expense 10 So basically for this period the net interest expense is 20,000 Why because the company held the bond for for two month, which they save themself $10,000 in interest cost now what happens if Adam is should the six percent bond at 103 rather than at 100 before we answer that question I would like to remind you whether you are a student or a CPA candidate to take a look at my website Farhat lectures calm I can be an additional resource to your accounting education to your CPA preparation I don't replace your course your CPA review course nor your actual accounting course I'm a useful edition supplement that's gonna help you understand the material better which in turn you will do better understand it better Improve your career chances a move on with your life past the CPA exam your risk is one month of subscription Your potential gain is improving your performance If not for anything take a look at my website to find out how well or not well your university doing on the CPA exam This is a list of all my accounting courses and That includes resources such as Lectures multiple choice through false exercises my CPA are Aligned my CPA resources are aligned with your back or Roger Gleam and Wiley So it's very easy to go back and forth between my material and your CPA review course I also provide you with 1500 plus AICPA previously released question with detailed solution if you have not connected with me only then please do so take a Look at my LinkedIn recommendation like this recording share it with other connect with me on Instagram Facebook Twitter and Reddit Well, if Adam issue the bond at 103 on March 1st. Here's what's gonna happen They're gonna receive 103 premium for the bond plus they are going to receive the accrued interest that we computed earlier Happens to be 10,000. Therefore, we would receive 1,000,000 and 30,000 for the bond We would receive 10,000 for the premium the cash will be 1,000,000 and 40,000 the bonds will still be for a 1,000,000 The premium is 30,000 and we'll have an interest expense of $10,000 now to learn a little bit more about this topic What you should do is go to my website far hat lectures calm and work additional multiple choice questions and see additional Resources the CPA exam is worth it. Good luck study hard and of course stay safe