On January 2,2017,Wynn Corporation sold $750,000 of bonds for $745,000.The bonds will mature in ten years and pay interest annually on December 31.Wynn properly recorded the payment of interest and amortization of the discount using the effective interest method.Which of the following statements is true about the carrying value of the bonds and/or the unamortized discount at the end of 2017?

Question

Quizplus · Accepted Answer

Since the bonds were sold at a discount ($750,000 for $745,000), there is an unamortized discount that needs to be accounted for using the effective interest method. This means that each year, the discount will be gradually amortized (i.e. reduced) over the life of the bond. Therefore, at the end of 2017, the carrying value of the bond will be greater than $745,000 (the initial sale price), as the discount will have been partially amortized. The unamortized premium cannot be less than $5,000 because there is no premium mentioned in the question.

On January 2,2017,Wynn Corporation Sold $750,000 of Bonds for $745,000