Amortized Cost - Held to Maturity

CFA Level II
#1

Hello,

For a bond that is trading at a discount, does amortization of the discount needs to be added to interest income on income statement? So if a bond provides a $30 coupon payment and the total amortized discount added to the balance sheet is $15, do you list both on the income statement (providing a total of +$45 before taxes)?

Thanks!

#2

i believe nothing is showing on IS on BS you have amortized cost, which is initial say 90 + 45 -30 = 105, because you are selling the bond aat a discount, which means your discount rate is higher than the bond rate

#3

Correct.

BS Bond entries PL Revenue

Financial asset Cash

    • Begin. balance Bond purchase value 1. - Bond purchase
    • 15 (amortization of discount) 2. + 30 collected coupon 3. - 45 Revenue from coupon +

Discount amortization

where + means debit and - means Credit ( revenues Are increased by Credit side entries)

If Bond was purchased by premium instead, Revenue would be deducted by coupon - premium amortization amount.