Question

In: Finance

Discount-Mart issues $10 million in bonds on January 1, 2021. The bonds have a ten-year term...

Discount-Mart issues $10 million in bonds on January 1, 2021. The bonds have a ten-year term and pay interest semiannually on June 30 and December 31 each year. Below is a partial bond amortization schedule for the bonds:

Date Cash Paid Interest Expense Increase in Carrying Value Carrying Value
01/01/2021 $ 8,640,967
06/30/2021 $ 300,000 $ 345,639 $ 45,639 8,686,606
12/31/2021 300,000 347,464 47,464 8,734,070
06/30/2022 300,000 349,363 49,363 8,783,433
12/31/2022 300,000 351,337 51,337 8,834,770


What is the carrying value of the bonds as of December 31, 2022?

Solutions

Expert Solution

Answer: Carrying value of the bonds as of December 31, 2022 = $8,834,770

Carrying value at any point of time [for bonds issued on discount] = Face value of bonds payable-Unamortized discount on bonds payable.

For bonds issued at permium, Carrying value at any point of time = Face value of bonds payable+Unamortized premium on bonds payable.


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