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A company issues $16100000, 9.8%, 20-year bonds to yield 10% on January 1, 2020. Interest is...

A company issues $16100000, 9.8%, 20-year bonds to yield 10% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $15823739. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2020 balance sheet?

$16100000

$15828427

$15837789

$15826026

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Answer #1

Answer-

Answer is option (b) $15,828,427
Interest paid for 6 Months Cash =$16,100,000*9.8%*1/2 =$788,900
Discount on issue of Bonds =$16100,000 - $ 15,823,739=$276,261
date Interest Cash Interest expenses@8% Amortisation of Discount balance of Unamortised Discount carrying value
jan 1,2020 276261 15823739
June 30,2020 788900 791,187 2287 273,974 15,826,026
(15,823,739*0.1*0.50) (791187-788900) (276261-2287) (15823739+2287)
Dec31,2020 788900 791,301 2401 271,543 15,828,427
(791,301-788,900) (273,974-2401) (15,826,026+2401)

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