On January 2,2017,Concrete Master Construction,Inc.issued $500,000,ten-year bonds for $574,540.The bonds pay interest on June 30 and December 31.The face rate is 8%,and the market rate is 6%.What is the carrying value of the bonds after the first interest payment is made on June 30,2017?

Question

Quizplus · Accepted Answer

To calculate the carrying value of bonds after the first interest payment, we need to calculate the interest expense and the amortization of bond discount.

Interest Expense:
= Carrying value of bonds on January 2, 2017 * Market rate * Time
= $574,540 * 6% * 6/12
= $17,236

Amortization of bond discount:
= Bond discount / Number of Interest Payment
= ($574,540 - $500,000)/20
= $3,627

Carrying Value on June 30, 2017:
= Carrying value on January 2, 2017 + Interest Expense - Amortization of bond discount
= $574,540 + $17,236 - $3,627
= $571,776

Therefore, the carrying value of the bonds after the first interest payment is made on June 30, 2017 is $571,776. Option B is the correct answer.