In: Accounting
On January 1, Year 1, Victor Company issued bonds with a $650,000 face value, a stated rate of interest of 6%, and a 5-year term to maturity. The bonds sold at 95. Interest is payable in cash on December 31 of each year. Victor uses the straight-line method to amortize bond discounts and premiums. What is the carrying value of the bond liability at December 31, Year 3?
Bonds issue price | 617500 | =650000*0.95 |
Discount on issue | 32500 | =650000-617500 |
Annual discount amortization | 6500 | =32500/5 |
Discount amortized for 3 years | 19500 | =6500*3 |
Bonds issue price | 617500 | |
Add: Discount amortized for 3 years | 19500 | |
Carrying value of the bond liability at December 31, Year 3 | 637000 |