Question

Sandhill Co. sold $3,300,000, 7%, 10-year bonds on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on January 1. The company uses straight-line amortization on bond premiums and discounts. Financial statements are prepared annually.

Show the long-term liabilities balance sheet presentation for issuance of the bonds sold at 104 at December 31, 2017.

Show the long-term liabilities balance sheet presentation for issuance of the bonds sold at 97 at December 31, 2017.

Answer 1

Solution a: (Bonds Issued at 104)

Face Value = $3,300,000

Issue Price = $3,300,000 *104% = $3,432,000

Maturity = 10 years

Premium on Bonds payable = $3432000 - $3300000 = $132,000

Unamortized Premium on December 31, 2017 = $132000 - ($132000*1/10) = $132000 - $13200 = $118,800

Sandhill Co.
Balance Sheet (Partial)
As at December 31, 2017
Long Term Liabilities:
Bond Payable	$33,00,000
Add: Unamortized Premium	$1,18,800
Carrying Value	$34,18,800

Solution b: (Bonds Issued at 97)

Face Value = $3,300,000

Issue Price = $3,300,000 *97% = $3,201,000

Maturity = 10 years

Discount on Bonds payable = $3300000 - $3201000 = $99,000

Unamortized Discount on December 31, 2017 = $99000 - ($99000*1/10) = $99000 - $9900 = $89,100

Sandhill Co.
Balance Sheet (Partial)
As at December 31, 2017
Long Term Liabilities:
Bond Payable	$33,00,000
Less: Unamortized Discount	$89,100
Carrying Value	$32,10,900