Bonds for Dummies?

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

Comments

  • Jon
    Jon SuperUser, Mac Beta Beta
    edited January 13
    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.
    Quicken Mac subscription. Quicken user since 1990.
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    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.)