Herman Company received proceeds of $565,500 on 10-year, 8% bonds issued on January 1, 2012. The bonds had a face value of $600,000, pay interest semi-annually on June 30 and December 31, and have a call price of 101. Herman uses the straight-line method of amortization. What is the carrying value of the bonds on January 1, 2014?

Question

Quizplus · Accepted Answer

The discount on the bonds is $34,500 ($600,000 - $565,500). Over 10 years, the annual amortization is $3,450 ($34,500 / 10). By January 1, 2014, two years have passed, so $6,900 ($3,450 x 2) of the discount has been amortized. The carrying value is $565,500 + $6,900 = $572,400.

Herman Company Received Proceeds of $565,500 on 10-Year, 8% Bonds