Webster Company issues $1,000,000 face value, 6%, 5-year bonds payable on 31 December 2013. Interest is paid semiannually each 30 June and 31 December. The bonds sell at a price of 97; Webster uses the straight-line method of amortizing bond discount or premium.
-The carrying value of this liability in Webster Company's 31 December 2014, statement of financial position is:
A) $1,000,000.
B) $970,000.
C) $976,000.
D) $967,000.

Question

Quizplus · Accepted Answer

The bonds were issued at 97, meaning they were sold for 97% of the face value, which is $970,000. The discount of $30,000 ($1,000,000 - $970,000) is amortized over 5 years, or 10 periods, using the straight-line method. This results in an amortization of $3,000 per period. By 31 December 2014, two periods have passed, so $6,000 of the discount has been amortized, increasing the carrying value to $976,000 ($970,000 + $6,000).

Webster Company Issues $1,000,000 Face Value, 6%, 5-Year Bonds Payable