Sunwood Company issued $800,000 of 6%, 5-year bonds at 98, 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 98, meaning they were sold for 98% of the face value, which is $784,000. The discount on the bonds is $16,000 ($800,000 - $784,000). Using straight-line amortization over 5 years, the annual amortization is $3,200 ($16,000 / 5). After one year, the carrying value is $784,000 + $3,200 = $787,200.

Sunwood Company Issued $800,000 of 6%, 5-Year Bonds at 98