On January 1, a company issued and sold a $400,000, 7%, 10-year bond payable, and received proceeds of $396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount.
-The carrying value of the bonds immediately after the second interest payment is:

Question

On January 1, a company issued and sold a $400,000, 7%, 10-year bond payable, and received proceeds of $396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. 
-The carrying value of the bonds immediately after the second interest payment is:

Quizplus · Accepted Answer

The bond discount of $4,000 ($400,000 - $396,000) is amortized over 20 periods (10 years x 2). Each period, $200 ($4,000/20) is amortized. After two periods, $400 is amortized, so the carrying value is $396,000 + $400 = $396,400.

On January 1, a Company Issued and Sold a $400,000