A company issues $5,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2010.Interest is paid on June 30 and December 31.The proceeds from the bonds are $4,901,036.Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2010 statement of financial position?

Question

Quizplus · Accepted Answer

The correct answer is A because the carrying value of the bonds on the December 31, 2010 statement of financial position will be $4,903,160. This is because the bonds were issued at a discount, and the effective-interest amortization method allocates the discount over the life of the bonds. As a result, the carrying value of the bonds will increase over time as the discount is amortized.

A Company Issues $5,000,000, 7