Blandings Glassware Company issues $1,000,000 of 8%,10-year bonds at 98 on February 28,2014.The bonds pay interest on February 28 and August 31.Assume that Blandings uses the straight-line method for amortization.What net balance will be reported for the bonds on the balance sheet on August 31,2014?

Question

Quizplus · Accepted Answer

The correct answer is A. The net balance reported for the bonds on the balance sheet on August 31, 2014, will be $981,000. This is because the bonds were issued at a discount of $20,000 ($1,000,000 - $980,000), and the straight-line method of amortization will amortize this discount over the life of the bonds. As of August 31, 2014, six months have passed since the bonds were issued, so $10,000 of the discount has been amortized ($20,000 / 10 years * 6 months). This means that the carrying value of the bonds on August 31, 2014, will be $980,000 + $10,000 = $981,000.

Blandings Glassware Company Issues $1,000,000 of 8%,10-Year Bonds at 98