How Do I Record Interest And Increased Value For a Zero-coupon Bond?

Zero-coupon bonds are purchased at a discount. During the time that you hold them, their value increases as they earn interest. Although you don't receive this interest until you sell the bonds, the interest is reported to you every year on form 1099 OID as taxable interest income.

Your cash balance is increased by the interest income and then decreased by the return of capital. It should be unchanged after the two transactions.

Use the Income dialog to record the interest income from a zero-coupon bond, and use the Return of Capital dialog to record the increase in the value of the bond. Note that return of capital is not the same as a capital gains distribution.

  • Return of Capital - Money paid to you as total or partial repayment of the money you invested. Return of capital differs from a sale in that you are not the one who initiates the return of capital. For example, a mortgage-backed security, such as a Ginnie Mae, returns capital when the underlying mortgages pay off principal, which is passed on to you. A unit trust returns capital as it sells the bonds within the trust.
  • Capital Gains Distribution - Money paid to shareholders by a mutual fund. It comes from sales by the fund of some of its underlying securities for more than their cost. The distributions you receive are a distribution of the capital gains from the fund. To record capital gains in Quicken, in the transaction list, click the Enter Transaction button and select Income.
  1. Open the account you want to use.
  2. Click Enter Transactions.

    • To record the increase in the value of the bond
      • In the Enter Transaction list, select Return of Capital
      • Enter a dollar amount equal to the negative value of the interest. (The negative return of capital increases your cost basis. It reduces realized gain, if you sell the bond or update the current market price of the bond.)
        • Cost Basis - Cost basis equals the total cost to you of a security you purchased. It includes commissions, fees, and mutual fund loads. It also includes all purchases, even reinvestments of dividends and capital gains distributions. However, it excludes the cost of any shares you have sold or given away. Also, it is reduced in a return-of-capital transaction
        • Example
          For example, if you recorded interest income of $17, you would enter -$17 as the return of capital.