Bonds for Dummies?

dogwind

Hi,
New to buying bonds, new to tracking bonds. I have searched bonds here before posting. Any "best post" you can direct me to would be appreciated. I want to able to match monies from buy to redeem and am not so interested in tracking the value of existing bonds or amortizing accrued interest at this time (accountants for tax purposes do?) I just want ins and outs to match. Have Excel download as backup.
The items below boil down to one overarching question - how do I tweak what is happening for good reporting.
1. Bought T Note in June, matured in December. That action = BUY (shares times price)
2. Next entry is a negative for accrued interest action = Misc Exp...what? Different action needed for this for reports?
3. Next entry was a positive for IntInc. BTW - I have to click on this one and #2 entry to see these to see $ amts. Do I have a setting that needs adjustment?
4. In December I get the face value of the Note back and Q puts it in as a deposit and then a second entry for the same Note with no money values. Action = Deposit can't be right?
5. I got paid interest for same amt again in December. Action = IntInc.
If I had bought this bond JUST AFTER the first interest payment my accrued interest deduction would be a lot smaller yes? That's how that works? You get the full interest minus what is NOT yours. Only the patient person can try to tell me why you amortize that!
Thanks for any help. Bob

Jon

When you buy a bond on the secondary market you're almost certainly buying it sometime between interest payments, so there is some interest that's accumulated on the bond since the last interest payment. The person who is selling the bond needs to be compensated for that interest but it won't be paid out by the bond issuer until the next interest payment, so instead you pay them that interest when you purchase the bond - that's the accrued interest payment. You get that money back on the next interest payment.

For example, let's say there's a bond that pays out $100 in interest every 6 months, at the end of June & December. Let's say you buy that bond at the end of October. Since you're two-thirds of the way through the July-December time period, there is 2/3 of $100 in accrued interest owed to the seller, so you pay them $66.67. Then at the end of December you collect the $100 interest payment, leaving you with a net of $33.33, equal to the interest earned during the November-December time period you owned the bond.

When you file your taxes, the accrued interest is subtracted from the interest you collect on the bond so it reduces your tax liability, that's why you want to track it in Quicken. Quicken Mac has Accrued Interest categories (one for taxable, one for tax-free); I would assume QWin does also.

q_lurker

The items below boil down to one overarching question - how do I tweak what is happening for good reporting.

Well my first thought is to not necessarily trust what might get downloaded from a brokerage house.  

First entry, within Quicken bonds are treated as 'shares' priced around (above or below) a $100/share level.  So if you bought a $1000 face value bond for $850, Quicken will want treat that as 10 'shares' of that security bought at $85 per share.

Second entry - the MiscExp is paying the prior owner their accrued interest.  In my opinion, that should be recorded against the category _IntInc or _IntIncTaxFree, as applicable.  Those are two hidden (and required and fixes) categories Quicken uses for Interest income actions within investment accounts.  Note the leading underscore _ character. 

Third, IntInc -- A positive value entry each time you get an interest payment on the bond.  That may just be at maturity or could be every 6 moths for several years.

Fourth 

In December I get the face value of the Note back and Q puts it in as a deposit and then a second entry for the same Note with no money values. Action = Deposit can't be right?

You're right.  See my first thought.  If the transaction doesn't make sense, it is quite possible incorrect.  In this case, the right transaction is to Sell the shares, Action = Sold.  There is also a similar SellBond action, but I prefer the Sold.  That will give you the cash and get rid of the holding.  Also, it is not Quicken "putting it in as a deposit.".  The brokerage "sent it as a deposit."  Quicken did what it was told.  

And yes, I am leaving out the amortization issues which can be handled a variety of ways.  In that vein, it is the premium or discount paid when bought that is amortized such that there is no cap gain/loss when the bond is sold at maturity.  Nothing to do with  accrued interest.  (As best I understand it.)      

dogwind

Thank you both! I am so sorry to have lost this thread. Absentminded rudeness.
The underscore is to designate a category within investments (all hidden)?
Why do I have non-underscored IntInc in personal income? Problematic to make it all one category?

Maybe should be another thread but quickly:
Do you throw credits into your personal expense categories? Refund from auto store becomes a credit in the auto supply category rather than calling it a refund (income)? How you do it? To represent "true yearly cost of a thing" and not have it be in a meaningless (to me) category? Thank you so much.
Bob

Jon

dogwind said:

Do you throw credits into your personal expense categories? Refund from auto store becomes a credit in the auto supply category rather than calling it a refund (income)? How you do it? To represent "true yearly cost of a thing" and not have it be in a meaningless (to me) category? 

If I purchase something & then return it, the credit gets categorized the same as the purchase so they cancel each other out. If I get a rebate on a purchase I'll probably do the same thing.

Other credits get their own category - cash back on credit cards, for example. I only cash those in a couple times a year & I don't try to proportionally split up the cash back among the various categories I made purchases for (too much work).

q_lurker

dogwind 
… 

The underscore is to designate a category within investments (all hidden)?
Why do I have non-underscored IntInc in personal income? Problematic to make it all one category?

Yes, the categories starting with an underscore are required to exist so that Quicken can match them up with investment account actions. Quicken “hides” them I guess so that users do not try to delete them. 

The non-underscore IntInc category is one Quicken offers as a getting started category, but it is not required and could be deleted if the user chose to. It would typically be used for interest received from a bank or savings account. Problematic?  You cannot force the investment transactions to use IntInc rather than _IntInc, but you can choose to use the underscore version for the non-investment accounts without any problems. 

dogwind said:

… 
Do you throw credits into your personal expense categories? Refund from auto store becomes a credit in the auto supply category rather than calling it a refund (income)? How you do it? To represent "true yearly cost of a thing" and not have it be in a meaningless (to me) category? Thank you so much.
Bob

Yes.  I apply refunds and credits for returned items against the original used expense category. When you get into cash-back credits (rewards?) for cc purchases, users sometimes get more creative, sometimes overly so in my opinion. Whether that goes against a general (non-taxable) income category, or a specific catch-all expense category or some other path is a user choice.