On April 1, Allen Company purchased $25,000 of Stevens Corporation's 8% bonds at a purchase price of 96. Allen Company, whose year end is December 31, expects to hold the bonds until their maturity date 5 years from the date of purchase. Interest on the bonds will be paid every April 1 and October 1 until maturity. Allen Company uses the straight- line method to amortize premium or discount on held- to- maturity investments. What is the carrying value of the investment at December 31?

Question

Quizplus · Accepted Answer

The bonds were purchased at a discount (96% of $25,000 = $24,000). The discount of $1,000 ($25,000 - $24,000) is amortized over 5 years. By December 31, 9 months of amortization have occurred, so $150 ($1,000/60 months * 9 months) is amortized. The carrying value is $24,000 + $150 = $24,150.

On April 1, Allen Company Purchased $25,000 of Stevens Corporation's