On January 1, Year 1, Jones Company issued bonds with a $200,000 face value, a stated rate of interest of 7.5%, and a 5-year term to maturity. The bonds were issued at 97. 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?

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Quizplus · Accepted Answer

The bonds were issued at 97, meaning they were issued at a discount. The discount is $200,000 - ($200,000 * 0.97) = $6,000. The annual amortization of the discount using the straight-line method over 5 years is $6,000 / 5 = $1,200. By December 31, Year 2, two years of amortization have occurred, totaling $2,400. The carrying amount of the bonds is $194,000 ($200,000 - $6,000 + $2,400). Therefore, the total liabilities are $196,400.

On January 1, Year 1, Jones Company Issued Bonds with a $200,000