Jarmin Company received proceeds of $377,000 on 10-year, 8% bonds issued on January 1, 2014. 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, 2016?
A) $400,000
B) $381,600
C) $395,400
D) $379,300

Question

Quizplus · Accepted Answer

The carrying value of the bonds on January 1, 2016 is $381,600. The bonds were issued at a discount of $23,000 ($400,000 - $377,000). This discount is amortized over the life of the bonds using the straight-line method. The annual amortization is $2,300 ($23,000 / 10 years). The carrying value of the bonds on January 1, 2016 is $381,600 ($377,000 + $4,600).

Jarmin Company Received Proceeds of $377,000 on 10-Year, 8% Bonds