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Premium Bonds:Repaying Principal at Maturity

Brian Krogol
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Alright, so let's finish up here with the repayment of principal on the maturity date. So now time has passed. We've made interest payments over the five years and we've been making interest interest expense journal entries like we saw in the previous two journal entries. Okay. So what you think about is if we look at our premium account, if we look at the premium tier account, It started with a balance of 4000 right as a credit balance. And in each of our interest expense journal entries, we were taking away 400 each time. And we've done this 10 times now right times 10 times we did it in total. So that gets rid of the entire balance and there's no premium left. So what's left in the liability is the bonds payable account, right? The bonds payable that had the 50,000 in the principal amount. Well it's finally time to pay off that principal and we're gonna make a journal entry to pay off that principle. So now if we were to look on our, on our balance sheet and look at our liabilities we would have on our liabilities, bonds payable. There we go, bonds payable of 50,000 plus a premium Of zero. Right? At this point we've made all of our journal entries for interest expense. We've paid all our interest expense and there's no no premium left. We've advertised the entire amount into interest expense. So all that's left is the 50,000 in the bonds payable account. What we're gonna finally pay that off. We're going to debit bonds payable for 50,000 and we're going to credit cash for 50,000 cause we're paying them in cash. So we credit the cash to get rid of it and that's it. The final entry is usually very simple. All we gotta do is get rid of the bonds payable and credit the cash. Cool. Alright so that's all that happened here. The cash is going down by 50,000 because we paid out 50,000 in cash and our bonds payable. Bp we no longer owe this liability. We've paid it off So we get rid of the liability. It also decreases by 50,000. Very simple. The toughest thing about this is advertising the premium and advertising the discount especially where I see students struggle is whether we're going to credit the premium when we're discounting it or debit the premium when we're discounting it or excuse me advertising it. Right. What are we gonna do? All you got to think about is that original balance right? When you think about a premium it's increasing the balance of our liability. So it's gonna have a credit balance because it increases a liability with a credit. So how do we get rid of it with debits? So it's gonna be debits to the premium to get rid of it over the course of the interest expense. And the opposite happens with the discount. So before you guys finish up this lesson I want you guys to compare what you did in the previous few pages with discount discount on bonds payable and compared to what we just did with premium on the bonds payable and you'll see that it's very similar, Right? Alright. Let's go ahead and wrap up with a practice problem and then move on to the next topic.