You first add a Voluntary PIK Bond Announcement:
Account PIKDEMO owns 1,000,000.00 of ITSA Limited.
On 20031220, ITSA Limited pays in kind, based on a 12% Coupon Rate. The entity PIKDEMO wishes to provide its own price for the Baby Bond created by this corporate action. For this to happen, the PIK corporate action must have the Mandatory/Voluntary Flag set to Voluntary. See the following figure.
On 20031220, ITSA Limited pays in kind, based on a 12% Coupon Rate. The entity PIKDEMO wishes to provide its own price for the Baby Bond created by this corporate action. For this to happen, the PIK corporate action must have the Mandatory/Voluntary Flag set to Voluntary. See the following figure.
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You then add a Voluntary Entity Election. See the following figure.
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On 20031215, Eagle Accounting creates a new Lot for the Baby Bond.
The new lot has a Trade Date equal to the Ex-Date of the corporate action.
A Settlement Date of the lot is the Payment Date of the corporate action.
In this scenario, the Trade Date is 20031215, and the Settlement Date is 20031220.
Eagle Accounting creates the new lot Par using the formula:
Baby Bond Par = (Baby Bond Rate / Coupon Rate) * Total Coupon Due as of Coupon Date or, 60,000.00 = (12/12) * 60,000.00
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In this scenario, Eagle Accounting creates the general ledger entries shown in the following table.
General Ledger Entries for Voluntary PIK Bond | ||||||
|---|---|---|---|---|---|---|
Trade Date | Accounting Date | Ledger Account | Ledger Account Description | dr amt | cr amt | Net dr cr amt |
Dec 15 2003 | Dec 15 2003 | 1007000500 | Investments Interest Receivable | 0.00 | 60,000.00 | (60,000.00) |
Dec 15 2003 | Dec 15 2003 | 1010000100 | Cost of Investments | 58,800.00 | 0.00 | 59,400.00 |
Dec 15 2003 | Dec 15 2003 | 4001000100 | Investment Interest Income | 1200.00 | 0.00 | 600.00 |
Dec 15 2003 | Dec 15 2003 | 1007000500 | Investments Interest Receivable | 1,666.67 | 0.00 | 1,666.67 |
Dec 15 2003 | Dec 15 2003 | 4001000100 | Investment Interest Income | 0.00 | 1,666.67 | (1,666.67) |