On November 1,2019,Davis Company issued $30,000,ten-year,7% bonds for $29,100.The bonds were dated November 1,2019,and interest is payable each November 1 and May 1.Davis uses the straight-line method of amortization.
- How much is the book value of the bonds after the November 1,2020 interest payment was recorded using the straight-line method of amortization?

Question

Quizplus · Accepted Answer

The discount on the bonds is $900 ($30,000 - $29,100). With the straight-line method, this discount is amortized evenly over the life of the bonds. The bonds have a ten-year life, so the annual amortization is $90 ($900 / 10 years). Since interest is paid semi-annually, the semi-annual amortization is $45 ($90 / 2). After one year (two interest payments), the total amortization is $90. Therefore, the book value of the bonds after the November 1, 2020 interest payment is $29,100 (initial value) + $90 (amortization after one year) = $29,190.

On November 1,2019,Davis Company Issued $30,000,ten-Year,7% Bonds for $29,100