Recording investment in a Canadian community bond

Question

This type of bond is bought at face value and accrues interest until final maturity when the face amount is repaid and the additional amount is interest income. CRA requires accrued interest be reported each year as interest income in spite of it being an accrual and not actual cash. How does this get recorded in Quicken?

Tom Young · Answer

"CRA requires accrued interest be reported each year as interest income in spite of it being an accrual and not actual cash."

If you must report the accrued interest as income for tax purposes but it's not received in cash then clearly a simple IntInc transaction has the problem that it puts phantom cash in the Account.

One way of recording the income without creating phantom cash is to create a phantom "security" - maybe something along the lines of "Acc Int CRA"  - and as each period report of interest becomes available you do record the IntInc transaction and then immediately use that "cash" to buy shares of Acc Int CRA at a price of $1/share.  At maturity you sell the bond at its original basis for no gain or loss, and do the same for the phantom security.  All the interest has been reported along the way and the cash for the sale of the two securities equals the received amount.

NotACPA · Answer

Are you running Q US, or Q CDA?  Is the bond denominated is USD or CAD?

Do you get any report from the bank/issuer as to what that accrued interest is for the year or in total?

And, assuming you do get that info, why can't you simply record it as interest received in the account?  Even though it hasn't been paid, it's already yours.  Just as any increase (or, unfortunately decrease) in stocks is yours.