Lesson details
- Estimated study time
- 90 min
Learning objectives (3)
Cedar Trail's bond price is $1,865,345.10. It also pays $25,000 of supplied qualifying issuance costs. The opening net carrying amount is therefore $1,840,345.10, while contractual face remains $2,000,000.
The opening workpaper keeps four amounts visible:
| Role | Amount |
|---|---|
| Face amount | $2,000,000.00 |
| Issue price before costs | 1,865,345.10 |
| Qualifying issuance costs | (25,000.00) |
| Opening net carrying amount | $1,840,345.10 |
An entry can present discount and issuance costs in separate detail accounts, but the balance-sheet debt is their net effect with face. Cash equals price less the invoice paid from closing. The cost does not reduce contractual principal or coupon payments.
Scope before arithmetic
The case stipulates that the $25,000 is a qualifying direct cost of issuing the recognized bond. A commitment fee on an undrawn line, ordinary legal retainer, unsuccessful financing cost, or recurring trustee fee may follow a different route. Do not qualify costs by description alone.
Exit check
Prepare the opening entry and a net-carrying-amount bridge. Then explain what would remain unchanged if issuance costs were $40,000: face, coupon cash, and market price. Identify what would change: cash paid, opening net carrying amount, and effective-yield expense under the applicable schedule.