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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