Jan 1 2002 face value issued, 200,000, 10 yrs, a 12% intrest. bond issued at 98. Intrest is payable on each Dec 31. the straight-line bond discount is used.
What is the carrying value on dec 2005?
2007-12-08 01:46:27 · 2 answers · asked by Anonymous in Business & Finance ➔ Other - Business & Finance
I need to know how to work it out
2007-12-08 03:48:08 · update #1
$ 327, 500.48
2007-12-08 02:18:34 · answer #1 · answered by Lauren1980 3 · 0⤊ 0⤋
When the bond was issued, the entry was:
Dr Cash 196,000 (200,000 x 0.98)
Dr Bond discount 4,000
Cr Bond payable 200,000
The bond has a maturity period of 10 yrs and interest is payable yearly, so the bond discount is divided by 10 to get the yearly amortisation: 4,000/10 = 400 each yr.
Bond discount:
On Jan 1, 2002 $4,000
Amortisation for 2002 ($400)
Amortisation for 2003 ($400)
Amortisation for 2004 ($400)
Amortisation for 2005 ($400)
Bal. at Dec 31, 2005 is 2,400
The carrying value of the bond on Dec 31, 2005 is its face value less the unamortised bond discount, i.e. $200,000 - $2,400 = $197,600.
As a counter-check, the bal. of the bond discount after 10 yrs would be 0 and the carrying value then would be $200,000 - $0 = $200,000. That would be right since the bond principal of $200,000 has to be repaid then.
2007-12-09 09:51:43 · answer #2 · answered by Sandy 7 · 0⤊ 0⤋