On January 1,2016,Zebra Corporation issued 1,000 of its 8%,$1,000 bonds at 98.Interest is payable semiannually on January 1 and July 1.The bonds mature on January 1,2026.Zebra paid $50,000 in bond issue costs.Zebra uses the straight-line amortization method.What is the bond book value reported in the December 31,2016,balance sheet?
A)$1,045,000.
B)$1,040,000.
C)$987,000.
D)$982,000.

Question

Quizplus · Accepted Answer

The bonds were issued at 98, meaning they were sold for 98% of their face value, which is $980,000 (1,000 bonds x $1,000 x 98%). The bond issue costs of $50,000 are amortized over the 10-year life of the bonds. The discount on the bonds is $20,000 ($1,000,000 - $980,000), and this is also amortized over 10 years. By December 31, 2016, one year of amortization has occurred. The amortization for the discount and bond issue costs is $2,000 each ($20,000/10 years and $50,000/10 years). Therefore, the bond book value is $980,000 + $2,000 (amortized discount) - $2,000 (amortized bond issue costs) = $982,000.

On January 1,2016,Zebra Corporation Issued 1,000 of Its 8%,$1,000 Bonds