Two Teaching Resources for Simplifying Bond Liability Accounting: The Gold Saver Deposit Accounts and the York Bank Bonds

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Abstract

Introductory accounting students have difficulty understanding aspects of accounting for discounted and premium bonds. Using these two learning resources sequentially enables students to decipher concepts and practices relating to discounts, premiums, amortization, market interest rates, contract interest rates, and bond carrying values.

The Gold Saver Deposit Accounts (GSDA) problem is covered immediately prior to covering bonds. In it three people make cash deposits simultaneously into simple GSDA bank accounts. Each depositor makes a withdrawal every six months and each closes the account after three years. With only one interest rate to consider, students have little difficulty completing a Net Deposit Liability Table and preparing journal entries for initial deposits, interest accruals & payments, and withdrawals to close the accounts. This assignment makes no reference to bonds.

The York Bank resource presents three bonds that are exact equivalents of GSDA deposits regarding timing and amounts for interest expense, net liabilities and cash flows. Students complete Bond Liability Amortization Tables and they prepare appropriate journal entries. They learn to equate bonds with simple bank accounts when they have difficulty with bond accounting concepts.

Using an earlier version of this approach led to a noticeable improvement in student exam grades.

Keywords: accounting for bonds, bond liability accounting, bond accounting

Author

• Daniel J Jones, Assumption College