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On January 1, 2016, Solo Inc. issued 368,000 of its 9% bonds at 95. Interest is...

On January 1, 2016, Solo Inc. issued 368,000 of its 9% bonds at 95. Interest is payable semiannually on July 1 and December 31. The bonds mature in ten years. Solo uses straight-line amortization. The carrying value of the bond on December 31, 2016 would be:

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Answer #1

Face Value of Bonds = $368,000

Issue Value of Bonds = 95% * $368,000
Issue Value of Bonds = $349,600

Discount on Bonds = Face Value of Bonds - Issue Value of Bonds
Discount on Bonds = $368,000 - $349,600
Discount on Bonds = $18,400

Annual Coupon Rate = 9%
Semiannual Coupon Rate = 4.5%
Semiannual Coupon = 4.5% * $386,000
Semiannual Coupon = $16,560

Time to Maturity = 10 years
Semiannual Period = 20

Semiannual Amortization of Discount = Discount on Bonds / Semiannual Period
Semiannual Amortization of Discount = $18,400 / 20
Semiannual Amortization of Discount = $920

July 1, 2016:

Carrying Value = $349,600 + $920
Carrying Value = $350,520

December 31, 2016:

Carrying Value = $350,520 + $920
Carrying Value = $351,440

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