In: Accounting
On January 1, 2023, Ajax Ltd. issued $10 million in bonds. The bonds have a 10-year term, 6% annual market interest rate, and pay interest semiannually. The seventeenth semiannual payment of $400,000 consisted of $311,15, interest and $88,849 premium amortization, after which the carrying amount was reduced to $10,282,861. What is the carrying value of the bonds after the eighteenth semiannual payment of $400,000?
Question 4 options:
$10,000,000 | |
$10,065,889 | |
$10,191,347 | |
This problem cannot be solved with the information given. |
Carrying value of bonds after 17th semi annual payment = $10,282,861
Market interest rate = 6%
Interest expense for 18th payment period = Carrying value of bonds after 17th semi annual payment x Market interest rate x 6/12
= 10,282,861 x 6% x 6/12
= $308,486
Semi annual interest payment = $400,000
Amortization of bond premium in 18th semi annual payment = Semi annual interest payment- Interest expense for 18th payment period
= 400,000-308,486
= $91,514
Carrying value of the bonds after the eighteenth semiannual payment = Carrying value of bonds after 17th semi annual payment - Amortization of bond premium in 18th semi annual payment
= 10,282,861-91,514
= $10,191,347
Third option is correct.