214. Jarmin Company received proceeds of $377,000 on 10-year, 8% bonds issued on January 1, 2017. The bonds had a face value of $400,000, pay interest annually on June 30 and December 31, and have a call price of 101. Jarmin uses the straight-line method of amortization. What is the carrying value of the bonds on January 1, 2019? A) $400,000 B) $381,600 C) $395,400 D) $379,300

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The annual interest payment is calculated as $400,000 × 8% = $32,000. Each semi-annual payment is $16,000. Using the straight-line method, the premium amount is $23,500 ($377,000 − $400,000). The amortization per year is $2,350 ($23,500 ÷ 10). By December 31, 2018, two years have passed, so the total amortization is $4,700 ($2,350 × 2). The carrying value of the bond on January 1, 2019 is the face value of $400,000 minus the premium amortized to date of $4,700, which equals $395,300. However, the bond has a call price of 101, so the carrying value cannot be above $404,000. Therefore, the carrying value of the bond on January 1, 2019 is $381,600 ($377,000 + $4,600).