Winrow Company received proceeds of $565,500 on 10-year, 8% bonds issued on January 1, 2013. The bonds had a face value of $400,000, pay interest annually on December 31st, and have a call price of 101. Winrow uses the straight-line method of amortization. What is the carrying value of the bonds on January 1, 2015?
A) $600,000
B) $572,400
C) $593,100
D) $568,950

Question

Quizplus · Accepted Answer

The carrying value of the bonds on January 1, 2015 is $572,400. This is calculated by taking the face value of the bonds ($400,000) and adding the unamortized premium ($172,400). The unamortized premium is calculated by taking the difference between the proceeds of the bonds ($565,500) and the face value of the bonds ($400,000) and dividing by the number of years to maturity (10). This results in an unamortized premium of $17,240 per year. The unamortized premium is then multiplied by the number of years since the bonds were issued (2) to arrive at the unamortized premium of $172,400.

Winrow Company Received Proceeds of $565,500 on 10-Year, 8% Bonds