Victor Company issued bonds with a $250,000 face value and a 6%stated rate of interest...

Victor Company issued bonds with a $250,000 face value and a 6% stated rate of interest on January 1, Year 1. The bonds carried a 5-year term and sold for 95. Victor uses the straight-line method of amortization. Interest is payable on December 31 of each year.

The carrying value of the bond liability on the December 31, Year 3 balance sheet was:

Multiple Choice $241,000. $242,500. $237,500. $245,000.

Solutions

Expert Solution

Issue Price is computed as shown below:

= $ 250,000 x 95%

= $ 237,500

Discount is computed as shown below:

= $ 250,000 - $ 237,500

= $ 12,500

Annual Amortization is computed as shown below:

= $ 12,500 / 5

= $ 2,500

So the bonds carrying value in year 3 balance sheet will be

= $ 237,500 + $ 2,500 x 3

= $ 245,000

So the correct answer is option of $ 245,000

jeff jeffy answered 2 years ago

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