Question

In: Accounting

Bonds with a stated interest rate of 9% and a face value totaling $625,000 were issued...

Bonds with a stated interest rate of 9% and a face value totaling $625,000 were issued for $637,500 on January 1, 2018, when the market interest rate was 8%. The company uses effective-interest bond amortization.


Required:

Determine the carrying value of the bonds at December 31, 2019. (Round your answer to nearest whole dollar.)

Solutions

Expert Solution

Carrying value of the bonds at December 31, 2019 = $ 626,580

Working:

Schedule of Interest Expense and Bond Premium Amortization
Effective Interest Method
Date Credit Cash Debit Interest Expense Debit Bonds Payable Bonds Carrying Amount/Net Book Value
1/1/2018 $                   637,500
31/12/18 $            56,250 $                        51,000 $                    5,250 $                   632,250
31/12/19 $            56,250 $                        50,580 $                    5,670 $                   626,580

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