On January 1, 2013, 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, 2023. Zebra paid $50,000 in bond issue costs. Zebra uses the straight-line amortization method. What is the bond carrying value reported in the December 31, 2013, balance sheet?
A)$1,045,000.
B)$1,040,000.
C)$987,000.
D)$982,000.

Question

Quizplus · Accepted Answer

First, we need to calculate the bond premium, which is the excess of the issue price over the face value:

Bond premium = (1,000 bonds × $1,000 face value per bond × 8% coupon rate × 1/2 year) × (1 − 98%) = $8,000

Next, we need to calculate the bond discount amortization for the first year, which is the bond issue costs divided by the bond term:

Bond discount amortization = $50,000 ÷ (20 years × 2 semiannual periods per year) = $1,250

Finally, we can calculate the bond carrying value as:

Bond carrying value = Face value + Premium − Discount amortization
Bond carrying value = (1,000 bonds × $1,000 face value per bond) + $8,000 − $1,250 = $1,007,750

Therefore, the correct answer is D ($982,000 is incorrect because it does not take into account the bond premium, while A and B are too high).

On January 1, 2013, Zebra Corporation Issued 1,000 of Its