On January 1, Year 1, Wayne Company issued bonds with a face value of $810,000, a 11% stated rate of interest, and a 10-year term. Interest is payable in cash on December 31 of each year. Wayne uses the straight-line method to amortize bond discounts and premiums. Assuming Wayne issued the bonds for 104, what is the carrying value of the bonds on the December 31, Year 1 balance sheet?

Question

Quizplus · Accepted Answer

The bonds were issued at 104, meaning they were issued at 104% of the face value. The premium is $32,400 ($810,000 * 4%). Using the straight-line method, the annual amortization of the premium is $3,240 ($32,400 / 10 years). The carrying value at the end of Year 1 is $810,000 + $32,400 - $3,240 = $839,160.

On January 1, Year 1, Wayne Company Issued Bonds with a Face