Jarmin Company received proceeds of $377,000 on 10-year, 8% bonds issued on January 1, 2020.The bonds had a face value of $400,000, pay interest annually on December 31 and have a call price of 101.Jarmin uses the straight-line method of amortization.What is the carrying value of the bonds on January 1, 2022?

Question

Quizplus · Accepted Answer

First, we need to calculate the discount on the bonds:

Discount = Face Value - Proceeds
Discount = $400,000 - $377,000
Discount = $23,000

Next, we need to calculate the annual amortization of the discount:

Annual Amortization = Discount / Number of Years
Annual Amortization = $23,000 / 10
Annual Amortization = $2,300

Since Jarmin uses the straight-line method of amortization, the same amount of discount will be amortized each year. Therefore, the carrying value of the bonds on January 1, 2022 will be:

Carrying Value = Face Value - Accumulated Amortization
Carrying Value = $400,000 - ($2,300 x 2)
Carrying Value = $400,000 - $4,600
Carrying Value = $395,400

Therefore, the best choice is B.

Jarmin Company Received Proceeds of $377,000 on 10-Year, 8% Bonds