Kaleidoscope Paint On January 1,2013,this company issued $500,000,10-year,9% bonds for $480,745.The bonds pay interest on June 30 and December 31.The market rate is 10%.The company plans to use the effective interest method of amortizing bond discounts and premiums.

-Refer to Kaleidoscope Paint.What is the carrying value of the bonds after the first interest payment is made on June 30,2013?

Question

-Refer to Kaleidoscope Paint.What is the carrying value of the bonds after the first interest payment is made on June 30,2013?

Quizplus · Accepted Answer

Using the effective interest method, the bond discount of $19,255 ($500,000 - $480,745) is amortized over the life of the bond. To calculate the carrying value after the first interest payment on June 30, 2013, we need to adjust the initial carrying value ($480,745) by the amount of discount amortized since issuance (i.e. for 6 months, or 1/20 of the total discount).

Discount amortization per period: $19,255 / 20 = $962.75

Interest expense for the first period (6 months): $500,000 x 10% x 6/12 = $25,000

Net increase in carrying value for the first period: $25,000 - $962.75 = $24,037.25

Carrying value after first interest payment: $480,745 + $24,037.25 = $482,282.25

Therefore, the best choice is B) $482,282.

Kaleidoscope Paint on January 1,2013,this Company Issued $500,000,10-Year,9% Bonds for $480,745.The