Question

On January 1, 2020, Overwater Experiences issues a bond due in 5 years with a coupon/stated...

On January 1, 2020, Overwater Experiences issues a bond due in 5 years with a coupon/stated interest rate of 6% and a face value of $100,000. Interest payments are made semi-annually on 6/30 and 12/31. The market rate for this type of bond is 7%. The bond sold for $95,842. What will be the carrying value of the bond on December 31, 2020?

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Answer #1

dicount on bonds = face value - issue price

= 100000 - 95842

= 4158 $

Amortization Schedule

Date int on bonds               (market rate) (7%*(bookvalue of bonds)* 6/12) Interest on bonds (cuponrate) (100000*6%* 6/12) Amortization of bonds Discount Carrying value of bonds balance in bod Discounnt account
A B C      (A-B) E D
1/1/2020 (interest expense) CREDIT (Cash paid ) crebit (Discount on bonds) 95842 4158
30/6/2020 3354 3000 354 96196 3804
31/6/2020 3367 3000 367 96563 3437

THEREFORE Carrying value of bonds = 96563 $

note

Carrying value of bonds = book value + amortization for the period

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