On January 1, Sewell Corporation issues $3,000,000, 5-year, 12% bonds at 96 with interest payable on January 1.What is the carrying value of the bonds at the end of the third interest period?
A)$2,952,000
B)$2,928,000
C)$2,832,000
D)$2,784,000

Question

Quizplus · Accepted Answer

The carrying value of the bonds at the end of the third interest period is $2,952,000. This is calculated as follows:Bond proceeds = $3,000,000 x 0.96 = $2,880,000Interest expense for the first year = $2,880,000 x 0.12 = $345,600Interest expense for the second year = $2,880,000 x 0.12 = $345,600Interest expense for the third year = $2,880,000 x 0.12 = $345,600Carrying value at the end of the third year = $2,880,000 + $345,600 + $345,600 + $345,600 = $2,952,000

On January 1, Sewell Corporation Issues $3,000,000, 5-Year, 12% Bonds