Hart Company issued $600000 of 8% 5-year bonds at 105 with interest paid annually. Assuming straight-line amortization what is the carrying value of the bonds after one year?

Question

Quizplus · Accepted Answer

The premium on the bonds is $600000 x 105% = $630000. Straight-line amortization is $630000 / 5 = $126000 per year. After one year, only $126000 of the premium will be amortized, so the carrying value of the bonds will be $630000 - $126000 = $624000. The premium on the bonds is $600000 x (105% - 100%) = $30000. The annual amortization of the premium is $30000 ÷ 5 = $6000. After the first year, the carrying value of the bonds will be $600000 + $30000 (premium) - $6000 (amortization) = $624000. Therefore, the correct choice is C.

Hart Company Issued $600000 of 8% 5-Year Bonds at 105