Neufeld Company issued $800,000 of 6%, 5-year bonds at 98, which pays interest annually. Assuming straight-line amortization, what is the carrying value of the bonds after one year?
A) $784,000
B) $785,600
C) $787,200
D) $790,400

Question

Quizplus · Accepted Answer

The bonds were issued at 98, meaning they were sold for 98% of $800,000, which is $784,000. The discount is $16,000 ($800,000 - $784,000). Using straight-line amortization over 5 years, the annual amortization is $3,200 ($16,000 / 5). After one year, the carrying value is $784,000 + $3,200 = $787,200.

Neufeld Company Issued $800,000 of 6%, 5-Year Bonds at 98