Question

A company issues $5,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2010. Interest is paid on June 30 and December 31. The proceeds from the bonds are $4,901,036. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2010 balance sheet?

A. $5,000,000

B. $4,902,077

C. $4,906,281

D. $4,903,160

Answer 1

Correct answer----------(D) $4,903,160

Working

Bond amortization table
Period		Cash payment (Credit)	Interest Expense (Debit)	Discount on bonds payable	Discount on bonds payable Balance	Bonds payable Carrying Value
					$             98,964	$      49,01,036
2010	June	$        1,95,000	$             1,96,041*	$         (1,041)	$             97,923	$      49,02,077
	Dec	$        1,95,000	$             1,96,083	$         (1,083)	$             96,839	$      49,03,161

*4901036 x 4%