On January 1, Year 1, Jones Company issued bonds with a $190,000 face value, a stated rate of interest of 8.0%, and a 5-year term to maturity. The bonds were issued at 97. Interest is payable in cash on December 31st of each year. The company amortizes bond discounts and premiums using the straight-line method.
What is the total amount of liabilities shown on Jones' balance sheet at December 31, Year 1?
Book value of bond on 1 Jan = 184300
(190000 face value - 5700 discount)
Calculation of Discount = 190000 * 3% (as bond issed at 97 out of 100)
Amortization Of discount per year = 5700 / 5
=1140 per year
Book value of Bond on 31 dec = 184300 + 1140
(as Jones company have to paid 190000 on maturity, discount given at the time of issue amortized per year)
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