Question

Weller Company issued bonds with a face value of $310,000, a 9.50% stated rate of interest, and a 10-year term. The bonds were issued on January 1, Year 1, and Weller uses the effective interest method of amortization. The market rate of interest on the date of issue was 7.50%. Interest is paid annually on December 31. Assuming Weller issued the bonds for $352,557.45, the carrying value of the bonds on the December 31, Year 3 balance sheet would be closest to: Select one: A. $349,549.26 B. $346,315.46 C. $342,839.12 D. $339,102.05

Answer 1

Correct Option C i.e. $342,839.12
Amortisation Schedule
Date	Cash Paid	Interest Expense	Decrease in carrying Value	Carrying Amount of Bonds
01/01 Year 1				352,557.45
31/12 Year 1	29,450	26,442	3,008	349,549.26
31/12 Year 2	29,450	26,216	3,234	346,315.45
31/12 Year 3	29,450	25,974	3,476	342,839.12
31/12 Year 4	29,450	25,713	3,737	339,102.06
31/12 Year 5	29,450	25,433	4,017	335,084.71
31/12 Year 6	29,450	25,131	4,319	330,766.06
31/12 Year 7	29,450	24,807	4,643	326,123.52
31/12 Year 8	29,450	24,459	4,991	321,132.78
31/12 Year 9	29,450	24,085	5,365	315,767.74
31/12 Year 10	29,450	23,683	5,767	310,000.00