Basil Company issued $640,000, 6%, 5-year bonds for 104, with interest paid annually. Assuming straight-line amortization, what is the carrying value of the bonds after one year?

Question

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The bonds were issued at 104, meaning they were sold for 104% of the face value, which is $665,600. The premium of $25,600 ($665,600 - $640,000) is amortized over 5 years. The annual amortization is $5,120 ($25,600 / 5). After one year, the carrying value is $665,600 - $5,120 = $660,480.

Basil Company Issued $640,000, 6%, 5-Year Bonds for 104, with Interest