On January 1, Year 1, Weller Company issued bonds with a $340,000 face value, a stated rate of interest of 9.50%, and a 10-year term to maturity. Weller uses the effective interest method to amortize bond discounts and premiums. The market rate of interest on the date of issuance was 7.50%. Interest is paid annually on December 31. Assuming Weller issued the bonds for $386,676, what is the carrying value of the bonds on the December 31, Year 3? (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

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Quizplus · Accepted Answer

The carrying value of the bonds on the December 31, Year 3 is $376,017. This is because the bonds were issued at a premium, and the premium is amortized over the life of the bonds using the effective interest method. The effective interest rate is 8.25%, which is the market rate of interest on the date of issuance. The annual interest payment is $32,300 (9.50% x $340,000). The amortization of the premium for Year 3 is $3,661 ($386,676 - $340,000 x 8.25%). The carrying value of the bonds on the December 31, Year 3 is $376,017 ($386,676 - $3,661).

On January 1, Year 1, Weller Company Issued Bonds with a $340,000