Question

On November 1, 2018, Crane Company purchased 1000 of the $1000 face value, 9% bonds of Ramsey, Incorporated, for $1080000, which includes accrued interest of $16100. The bonds, which mature on January 1, 2023, pay interest semiannually on March 1 and September 1. Assuming that Crane uses the straight-line method of amortization and that the bonds are appropriately classified as available-for-sale, the net carrying value of the bonds should be shown on Crane's December 31, 2018, balance sheet at

$1000000.

$1063900.

$1080000.

$1061344.

Answer 1

Solution:

Bond purchase cost including accured interest = $1,080,000

Accured interest in bond price = $16,100

Bond Carrying value on Nov 1, 2018 = $1,080,000 - $16,100 = $1,063,900

Face value of bond purchased = $1000 * 1000 = $1,000,000

Premium on bond = $1,063,900 - $1,000,000 = $63,900

Remaining period to maturity = 50 months

Premium Amortization for 2018 as per SLM = $63,900/50*2 = $2,556

Net carrying value of bonds should be shown on Crane Dec 31, 2018 balance sheet = $1,063,900 - $2,556

= $1,061,344

Hence last option is correct.