Question

On October 1, 2010, Renfro Co. purchased to hold to maturity, 1,000, $1,000, 9% bonds for...

On October 1, 2010, Renfro Co. purchased to hold to maturity, 1,000, $1,000, 9% bonds for $990,000 which includes $15,000 accrued interest. The bonds, which mature on February 1, 2019, pay interest semiannually on February 1 and August 1. Renfro uses the straight-line method of amortization. The bonds should be reported in the December 31, 2010 balance sheet at a carrying value of a. $975,000. b. $975,750. c. $990,000. d. $990,250

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Homework Answers

Answer #1

Solution:

Option (b). $975,750.

Calculations:

From the given data we need to find the carrying value of the bond.

Value of 9% bonds at the time of issue = $990,000 - $15,000

= $975,000.

Discount on purchase of 9% bonds = $1,000*$1,000 - $990,000

= $1,000,000 - $990,000

= $10,000.

Amortization of discount on bonds payable per month:

= $25,000 / 100 months(oct1, 2010 to Feb1, 2019)

= $250.

Amortized discount from october1, 2010 to Dec31,2010 = $250 * 3 months

= $750.

Carrying value of the bond = $975,000 + $750

= $975,750.

Carrying value of the bond = $975,750.

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