On November 1, 2015, Davis Company issued $30,000, ten-year, 6% bonds for $29,260. The bonds were...

On November 1, 2015, Davis Company issued $30,000, ten-year, 6% bonds for $29,260. The bonds were dated November 1, 2015, and interest is payable each on May 1 and November 1. Davis uses the straight-line method of amortization. How much is the book value of the bonds after the November 1, 2016 interest payment was recorded using the straight-line method of amortization?

Expert Solution

All working forms part of the answer
Bonds Book Value or Carrying Value on a date = Bonds Face Value on that date – Any un-amortised Discount + Any un-amortised Premium on that date.
Workings

A	Bonds Face Value	$ 30,000	[given]
B	Bonds Carrying Value (Cash proceeds)	$ 29,260	[given] = Book Value on Issue date
C = A - B	Discounts on Bonds payable	$ 740	[unamortised balance on issue date]
D	No. of interest payments in 10 years	20	10 years x 2 semi annual payments each year = 20
E = C/D	Straight Line Amortisation of discount with every interest payment	$ 37	$ 740/20 = $ 37 will be amortised with each interest payments
F	No. of interest payments till 1 Nov 2016	2	On May 1 2016 and on 1 Nov 2016
G = E x F	Discount Amortised in above	$ 74	$ 37 x 2 = $ 74
H = C - G	Unamortised Discount balance on 1 Nov 2016	$ 666	Unamortised discount on issue date - $ 74 = $ 666
I = A - H	Book Value of Bond on Nov 1 2016	$ 29,334	= ANSWER

Answer: Book Value on 1 Nov 2016 = $ 30,000 (Face Value) – $ 666 (Un amortised discount) = $ 29,334

ekkarill92 answered 3 years ago

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