On January 1,20A,Washer Company sold (issued)600,$1,000,five-year,8% bonds at 95.The bonds were dated January 1,20A,and interest is payable each June 30 and December 31.The company uses the straight-line method of amortization.What is the amount of the net liability for bonds payable that would be reported on the December 31,20A,statement of financial position?

Question

Quizplus · Accepted Answer

The face value of 600 bonds of $1,000 each is 600 x $1,000 = $600,000
The bonds were issued at 95, so the cash proceeds were 600 x $1,000 x 0.95 = $570,000
The discount on bonds payable is the difference between the cash proceeds and the face value, which is $30,000 ($600,000-$570,000).
Since the company uses straight-line method of amortization, the annual amortization of the discount is $6,000 ($30,000/5).
As of December 31, 20A, two semiannual interest payments have been made, so the bond discount amortized is $6,000 x 2 = $12,000.

Therefore, the net liability for bonds payable on December 31, 20A will be:
Bonds Payable: $600,000 (face value) - $12,000 (amortized discount) = $588,000
Less: Current portion of bonds payable (600 x $1,000 x 8%/2) = $24,000
Net Liability for Bonds Payable = $564,000

However, since none of the options match this result, the closest option to this value is B, which is $576,000.

On January 1,20A,Washer Company Sold (Issued)600,$1,000,five-Year,8% Bonds at 95