Basil Company issued $600,000,8%,5-year bonds for 106,with interest paid annually.Assuming straight-line amortization,what is the carrying value of the bonds after one year?

Question

Quizplus · Accepted Answer

The bond premium is $6,000 ($600,000 x 1% = $6,000). Each year, the bond premium is amortized by an equal amount, so after 1 year, the carrying value of the bond would be the face value of $600,000 plus the premium amortization of $6,000, minus the interest payment of $48,000 ($600,000 x 8%), which equals $558,000. However, since the bonds were issued at a premium, the carrying value needs to be adjusted by adding the premium, which was amortized, so the carrying value after one year is $628,800 ($558,000 + $70,800). Therefore, the best choice is C.

Basil Company Issued $600,000,8%,5-Year Bonds for 106,with Interest Paid Annually