On November 1, 2011, Roper Company purchased 600 of the $1,000 face value, 9% bonds of Poon, Limited, for $632,000, which includes accrued interest of $9,000.The bonds, which mature on January 1, 2016, pay interest semiannually on March 1 and September 1.Assuming that Roper uses the straight-line method of amortization and that the bonds are accounted for under the cost method, the net carrying value of the bonds should be shown on Roper 's December 31, 2011, balance sheet at

Question

Quizplus · Accepted Answer

First, we need to calculate the total amortization of the premium on the bond:
Premium on the bond = Purchase price - Face value = $632,000 - ($1,000 x 600) = $32,000
Amortization per year = Premium / Years to maturity = $32,000 / 5 = $6,400 per year
Amortization per period = Amortization per year / 2 (since interest is paid semiannually) = $3,200 per period.

As of December 31, 2011, Roper has held the bonds for 2 periods (since the purchase date was November 1, 2011). Therefore, the total amortization of the premium for the year ending December 31, 2011 is:
Total amortization = Amortization per period x Number of periods = $3,200 x 2 = $6,400

The net carrying value of the bonds as of December 31, 2011, can now be calculated by subtracting the total amortization from the initial purchase price:
Net carrying value = Purchase price - Total amortization = $632,000 - $6,400 = $625,600

However, we need to adjust for the accrued interest which was included in the purchase price:
Accrued interest = Face value x Interest rate x (Days accrued / Days in period)
Days accrued = 31 (since the bonds were purchased on November 1)
Days in period = 181 (from November 1 to December 31)
Accrued interest = $1,000 x 9% x (31/181) = $15.16 per bond
Total accrued interest = $15.16 x 600 = $9,096

Adjusted net carrying value = Net carrying value - Accrued interest = $625,600 - $9,096 = $616,504
Therefore, the answer is D) $622,080

On November 1, 2011, Roper Company Purchased 600 of the $1,000