Question

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A company issues $15900000, 5.8%, 20-year bonds to yield 6% on January 1, 2016. Interest is...

A company issues $15900000, 5.8%, 20-year bonds to yield 6% on January 1, 2016. Interest is paid on June 30 and December 31. The proceeds from the bonds are $15532475. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2018

a.

 $15592634

b.

 $15795428

c.

 $15565336
d. $15587604

Solutions

Expert Solution

Bonds Par Value = $       1,59,00,000
Less: Proceeds From sale of Bonds $       1,55,32,475
Difference $       3,67,525.00
This difference will amortize over the 20 years in equla installment
Equal installment = $       3,67,525.00
Divide By "/"By
Years = $                   20.00 Years
Amortization amount per year = $           18,376.25
Till the December 31, 2018 amount amortize = $           55,128.75
So Carrying value of the Bonds = Issue Value + Amortized Amount
Issue Value = $       1,55,32,475
Add: Amortize Value in 3 years $           55,128.75
Carrying Value $ 1,55,87,603.75
Carrying Value (Round off) $       1,55,87,604
Answer = Option D = $       1,55,87,604

ekkarill92 answered 2 years ago
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