On January 1, Year 1, Jones Company issued bonds with a $260,000 face value, a stated rate of interest of 7.5%, and a 5-year term to maturity. The bonds were issued at 98. Interest is payable in cash on December 31st of each year. The company amortizes bond discounts and premiums using the straight-line method. What is the total amount of liabilities shown on Jones' balance sheet at December 31, Year 2?

Question

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The correct answer is A.The total amount of liabilities shown on Jones' balance sheet at December 31, Year 2 is $256,880. This is calculated as follows:Face value of bonds: $260,000Discount on bonds: $5,200 ($260,000 x 2%)Unamortized discount at December 31, Year 2: $4,160 ($5,200 x 4/5)Total liabilities: $256,880 ($260,000 + $4,160)

On January 1, Year 1, Jones Company Issued Bonds with a $260,000