Question

On January 1, Year 1, Weller Company issued bonds with a \$380,000 face value, a stated...

On January 1, Year 1, Weller Company issued bonds with a \$380,000 face value, a stated rate of interest of 10.00%, and a 10-year term to maturity. Weller uses the effective interest method to amortize bond discounts and premiums. The market rate of interest on the date of issuance was 8.00%. Interest is paid annually on December 31.

Assuming Weller issued the bonds for \$410,240, what is the carrying value of the bonds on the December 31, Year 3? (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

Effective interest bond amortization table

 Years Cash interest paid at 10.00% Bond Interest Expense at 8.00% Annual premium amortization Unamortized Premium Carrying Value Jan 1, Year 1 30,240 4,10,240 Dec 31, Year 1 38,000 32,819 5,181 25,059 4,05,059 Dec 31, Year 2 38,000 32,405 5,595 19,464 3,99,464 Dec 31, Year 3 38,000 31,957 6,043 13,421 3,93,421

*Cash interest paid = Face Value x Annual coupon rate

= \$380,000 x 10.00%

= \$38,000 per year

Bond Interest Expense = Previous year carrying value x Market interest rate

Therefore, the carrying value of the bonds on the December 31, Year 3 will be \$393,421

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