Pakota Company issued $700,000 of 6%, 5-year bonds at 98, with interest paid annually.Assuming straight-line amortization, what is the carrying value of the bonds after one year?

Question

Quizplus · Accepted Answer

The carrying value after one year is calculated by adding the amortization of the bond discount to the initial carrying amount. The bond was issued at 98, meaning at 98% of the face value, so the initial carrying amount is $700,000 * 0.98 = $686,000. The total discount is $700,000 - $686,000 = $14,000. With straight-line amortization over 5 years, the annual amortization is $14,000 / 5 = $2,800. Therefore, after one year, the carrying value is $686,000 + $2,800 = $688,800.

Pakota Company Issued $700,000 of 6%, 5-Year Bonds at 98