Presented here is a partial amortization schedule for Courtney Company who sold $200,000, five year 10% bonds on January 1, 2010 for $208,000 and uses annual straight-line amortization. Which of the following amounts should be shown in cell (v)?
A) $209,600
B) $208,800
C) $206,400
D) $207,200

Question

Presented here is a partial amortization schedule for Courtney Company who sold $200,000, five year 10% bonds on January 1, 2010 for $208,000 and uses annual straight-line amortization.  Which of the following amounts should be shown in cell (v)?
A) $209,600 
B) $208,800 
C) $206,400 
D) $207,200

Quizplus · Accepted Answer

Since the bonds were sold for $208,000 and the annual straight-line amortization rate is $8,000 ($40,000 / 5 years), the carrying value of the bonds at the end of the first year would be $208,000 - $8,000 = $200,000. This means that the amount of interest expense for the first year would be $20,000 ($200,000 x 10%), and the amount of the premium amortization for the first year would be $8,000. Therefore, the carrying value of the bonds at the end of the second year would be $200,000 + $8,000 = $208,000, and so on. The amount shown in cell (v) represents the carrying value of the bonds at the end of the second year, which is $206,400 ($208,000 - $8,000 - $20,000).

Presented Here Is a Partial Amortization Schedule for Courtney Company