A factor that complicates the posting of the journal entries related to the issue of bonds is that the amount of money received by the issuing company may be different from the face value of the bond. If the bond stated rate is higher than the market interest rate at the time of issue of the bond, the company can sell the bond at a premium; on the other hand, if the stated rate is lower than the market interest rate, the company will be forced to sell the bond at a discount. Another complicating factor is that the issuing company has to make interest payments at regular time intervals throughout the life of the bond and a final payment on the date of the maturity of the bond. Many students of Accounting, especially at the undergraduate level, find the journal entries related to the treatment of bond discounts and premiums very confusing, since they are spread over many years, spanning the entire life of the bond, unlike the numerous other journal entries covering the annual operating activities of the company. In this paper, some hints and guidelines are provided with the goal of helping the studentsrecord the journal entries correctly when bonds are sold at a discount or a premium.
<p>The indirect method for preparing the statement of cash flows, as described in many standard textbooks, involves an item-by-item approach, telling you to add to or subtract from the net income, the increases or decreases in the balance sheet items, such as accounts payable or accounts receivable. Many business students, especially at the undergraduate level, find these black-box-rules confusing. In recent years, several articles have appeared in the accounting literature, exploring the link between the algebraic foundations and the enumeration of items in the statement of cash flows. In this paper, an explanation is provided, through an analysis of the basic algebraic equation of the balance sheet, for the black-box-rules of the indirect method in a simple and concise manner.</p>
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