On July 1,2019,Garden Works,Inc.issued $300,000 of ten-year,7% bonds for $303,000.The bonds were dated July 1,2019,and semiannual interest will be paid each December 31 and June 30.Garden Works Inc.uses the straight-line method of amortization.
-What is the net amount of the bond liability to be reported on the December 31,2019 balance sheet?

Question

On July 1,2019,Garden Works,Inc.issued $300,000 of ten-year,7% bonds for $303,000.The bonds were dated July 1,2019,and semiannual interest will be paid each December 31 and June 30.Garden Works Inc.uses the straight-line method of amortization. 
-What is the net amount of the bond liability to be reported on the December 31,2019 balance sheet?

Quizplus · Accepted Answer

The net amount of the bond liability on the December 31, 2019 balance sheet is calculated by taking the initial amount the bonds were issued for ($303,000) and subtracting the amortization for the first six months. Since the bonds were issued at a premium ($303,000 instead of $300,000), and Garden Works, Inc. uses the straight-line method of amortization, the total premium of $3,000 will be amortized over the life of the bond (10 years). This results in an annual amortization of $300 ($3,000 / 10 years), or $150 for six months. Therefore, the bond liability on December 31, 2019, would be $303,000 - $150 = $302,850.