On January 1, Sewell Corporation issues $2,000,000, 5-year, 12% bonds at 96 with interest payable on January 1. What is the carrying value of the bonds at the end of the third interest period?
A) $1,968,000
B) $1,952,000
C) $1,888,000
D) $1,856,000

Question

Quizplus · Accepted Answer

The carrying value of the bonds at the end of the third interest period is $1,968,000. This is because the bonds were issued at a discount, which means that the carrying value will increase over time as the bonds approach maturity. The carrying value is calculated by adding the face value of the bonds to the unamortized discount and subtracting the unamortized premium. In this case, the unamortized discount is $32,000 ($2,000,000 x 4%) and the unamortized premium is $0. Therefore, the carrying value of the bonds at the end of the third interest period is $2,000,000 + $32,000 - $0 = $1,968,000.

On January 1, Sewell Corporation Issues $2,000,000, 5-Year, 12% Bonds