On November 1, 2013, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The bonds were dated November 1, 2013, and interest is payable each November 1 and May 1. How much is the book value of the bonds after the November 1, 2014 interest payment was recorded, assuming the straight-line method of amortization is utilized?

Question

Quizplus · Accepted Answer

The bond has a face value of $30,000 and was sold for $29,100, at a discount of $900. Since the bond has a ten-year term, there will be 20 interest periods (10 years × 2 interest payments per year).
The annual interest payment is calculated as 7% x $30,000 = $2,100. The semi-annual interest payment is $2,100 / 2 = $1,050.
Using the straight-line method, the discount will be amortized over the 20 interest periods, resulting in $900 / 20 = $45 amortized per period.
After the first interest payment of $1,050 was made on November 1, 2014, the book value of the bond will be $29,145 ($29,100 + $45 amortization). Therefore, the correct answer is C, $29,190, which represents the book value after the second interest payment on May 1, 2015. After six months, an additional $45 of discount amortization will have occurred, resulting in a book value of $29,190 ($29,145 + $45 amortization).

On November 1, 2013, Davis Company Issued $30,000, Ten-Year, 7