Debt instrument (explicit interest)
1/1/X1, XYZ purchased a non-negotiable, one-year, 500,000 nominal value note paying a fixed, semi-annual coupon of 19,615 from ABC, an unrelated party, for 500,000.
Implying an annual interest rate of 7.99%.
Determined using Excel's =RATE function adjusted for semi-annual periodicity:
7.99% = ((1+RATE(1,19615,-500000,500000,0,1))^2) - 1
1/1/X1 | 1.1.X1 |
|||
Note |
500,000 |
|
|
|
Cash in bank |
|
500,000 |
3/31/X1, 6/30/X1, 9/30/X1, 12/31/X1 | 31.3.X1, 30.6.X1, 30.9.X1, 31.12.X1 |
|||
Accrued interest |
9,808 |
|
|
|
Interest income |
|
9,808 |
7/1/X1 | 1.7.X1 |
|||
Cash in bank |
19,615 |
|
|
|
Accrued interest |
|
19,615 |
1/1/X1 | 1.1.X1 |
|||
Cash in bank |
519,615 |
|
|
|
Note |
|
500,000 |
|
Accrued interest |
|
19,615 |
Debt instrument (implicit interest)
1/1/X1, XYZ purchased a non-negotiable, one-year, 500,000 nominal value, zero coupon note from ABC, an unrelated party, for 462,963. The note was redeemed 12/31/X1. XYZ elected to not apply the effective interest method for interim reporting purposes.
Implying an annual interest rate of 7.99%.
Determined using Excel's =RATE function: 7.99%=RATE(1,0,-462963,500000,0,1).
1/1/X1 | 1.1.X1 |
|||
Note |
462,963 |
|
|
|
Cash in bank |
|
462,963 |
3/31/X1, 6/30/X1 and 9/30/X 31.3.X1, 30.6.X1 a 30.9.X1 |
|||
Note |
9,259 |
|
|
|
Interest income |
|
9,259 |
12/31/X1 | 31.12.X1 |
|||
Cash in bank |
500,000 |
|
|
|
Interest income |
|
9,259 |
|
Note |
|
490,741 |
Same facts except XYZ elected to use a discount account.
1/1/X1 1.1.X1 |
|||
Note |
500,000 |
|
|
|
Discount |
|
37,037 |
|
Cash in bank |
|
462,963 |
3/31/X1, 6/30/X1 and 9/30/X 31.3.X1, 30.6.X1 a 30.9.X1 |
|||
|
9,348 |
|
|
|
Interest income |
|
9,348 |
12/31/X1 | 31.12.X1 |
|||
Discount |
9,348 |
|
|
|
Interest income |
|
9,348 |
Cash in bank |
500,000 |
|
|
|
Note |
|
500,000 |