Debt Amort

I'm having a hard time thinking these accounting entries through. Company has a convertible note that gets amortized. What entry am I missing here because the BS doesn't balance with what I have below??

with amort expense.....

P&L
NI - down

CF
NI - down
Amort - add back
cash impact is zero

BS
Cash - flat
Convert debt - down
Retained Earnings - down

 

Amortization refers to two different things that I think you might be confusing (1) the paying down of debt (principle) and (2) amortization that relates to asset value... I think you're talking about debt pay down which in this case your 'entries' wouldn't make sense as it would only impact the BS and the SCF primarily with maybe a reduction in interest expense impacting the P&L

'Before you enter... be willing to pay the price'
 
Best Response

Generally, the part that gets amortized relative to debt is the discount or premium, depending on the difference between face value and the cash collected. This difference (discount or premium) arises when market rates differ from the rate on the note. You have 3 scenarios:

1) Market rate = Note Payable rate; no discount or premium 2) Market rate Note Payable rate; discount, because note pays a lower rate than current market

In scenario 2 and 3, GAAP says you have to amortize the discount or premium over the number of repayments.

Here is a detailed explanation of the entries related to notes payable. Note the difference between amortizing using straight line vs effective interest method. I don't think the fact that they are convertible bonds affects the amortization of discount or premium. The convertible piece is only relevant to your question in the event that conversion takes place (that's a unique set of entries that aren't asked for here).

http://www.cliffsnotes.com/study_guide/Bonds-Payable.topicArticleId-212…

 

Consectetur recusandae atque omnis quae. Maxime nisi inventore et qui est beatae qui animi. Consectetur quas consequatur ducimus eos rerum maiores blanditiis est. Magni magni consequatur dolores molestiae magnam omnis. Libero est eius aut autem accusamus.

'Before you enter... be willing to pay the price'

Career Advancement Opportunities

April 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. New 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

April 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

April 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

April 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (87) $260
  • 3rd+ Year Analyst (14) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (205) $159
  • Intern/Summer Analyst (146) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Betsy Massar's picture
Betsy Massar
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Secyh62's picture
Secyh62
99.0
5
kanon's picture
kanon
98.9
6
GameTheory's picture
GameTheory
98.9
7
CompBanker's picture
CompBanker
98.9
8
dosk17's picture
dosk17
98.9
9
numi's picture
numi
98.8
10
Kenny_Powers_CFA's picture
Kenny_Powers_CFA
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”