On January 2,Year 1,Kampai Sushi Bar sold $800,000 of bonds for $785,000.The bonds will mature in 10 years and pay interest annually on December 31.The company properly recorded the payment of interest and the amortization of the discount using the effective interest method.What will the carrying value of the bonds and/or the unamortized discount at the end of Year 1 be? Refer to the PV table on pages 717 to 720 of the text..

Question

Quizplus · Accepted Answer

The carrying value of the bonds will be greater than $785,000 at the end of Year 1 because the discount on the bonds (the difference between the face value and the issued price) is amortized over the life of the bonds, increasing the carrying value each year until it reaches the face value at maturity.

On January 2,Year 1,Kampai Sushi Bar Sold $800,000 of Bonds