On November 1, 2015, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The bonds were dated November 1, 2015, and interest is payable each November 1 and May 1. Davis uses the straight-line method of amortization.
How much is the book value of the bonds after the November 1, 2016 interest payment was recorded using the straight-line method of amortization?

Question

Quizplus · Accepted Answer

The face value of the bond is $30,000, and the discount is $900 ($30,000-$29,100). The annual amortization is $90 ($900/10 years), which is recorded as interest expense each year. After the first year, on November 1, 2016, Davis would record an interest expense of $90 and a reduction in the discount of $90, bringing the book value of the bonds to $29,190 ($29,100 + $90). Therefore, the correct answer is C.

On November 1, 2015, Davis Company Issued $30,000, Ten-Year, 7