Rowan Corporation issued ten-year term bonds on January 1,2013,with a face value of $400,000.The face interest rate is 6 percent and interest is payable semi-annually on June 30 and December 31.The bonds were issued for $345,480 to yield an effective annual rate of 8 percent.The effective interest method of amortization is to be used.The carrying value of the bonds payable on the December 31,2013,balance sheet date should be (rounded to the nearest dollar)

Question

Quizplus · Accepted Answer

Step 1: Calculate semi-annual coupon payment:
Coupon payment = Face value x Semi-annual interest rate 
= $400,000 x 6%/2 
= $12,000

Step 2: Calculate number of semi-annual periods:
Since the bonds have a tenure of 10 years, there will be 20 semi-annual periods (2 per year) over the term of the bond.

Step 3: Calculate present value of the bond:
Present value = Bond issue price = $345,480

Step 4: Calculate effective interest rate per six months:
Effective annual rate = 8%
Effective semi-annual rate = (1 + 8%)^(1/2) - 1 
= 3.92%

Step 5: Calculate interest expense for 2013:
Interest expense = Carrying value of bond at the beginning of the year x Effective semi-annual rate 
= $345,480 x 3.92% 
= $13,528.38

Step 6: Calculate amortization of bond discount for 2013:
Amortization = Interest expense - Coupon payment 
= $13,528.38 - $12,000 
= $1,528.38

Step 7: Calculate carrying value of bond at the end of 2013:
Carrying value = Present value of bond - Accumulated amortization 
= $345,480 - $1,528.38 
= $343,951.62

Therefore, the correct answer is option C, $349,191 (rounded to the nearest dollar).

Rowan Corporation Issued Ten-Year Term Bonds on January 1,2013,with a Face