On January 1,2012,Breaker,Inc.issued $400,000,10-year,10% bonds for $354,200.The bonds pay interest on June 30 and December 31.The market rate is 12%.What is the carrying value of the bonds after the first interest payment is made on June 30,2012?

Question

Quizplus · Accepted Answer

The carrying value of the bonds at the time of issuance is given by the issue price, which is $354,200.
For the first interest payment, the interest expense would be calculated as:
Interest expense = Carrying value of bonds at the beginning * Market rate * Time
= $354,200 * 0.12 * 6/12 (since 6 months have passed)
= $21,252
The carrying value of the bonds after the first interest payment would be:
Carrying value = Carrying value at the beginning + Interest expense - Interest paid
= $354,200 + $21,252 - $20,000 (10% of face value)
= $355,452, which is option C.