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Company issued a $100,000 face value bond on January 1, 2013.  The 10 year term bond was...

Company issued a $100,000 face value bond on January 1, 2013.  The 10 year term bond was issued at 102 and had a 3% stated rate of interest that is payable on December 31st of each year. What is the carrying value of the bond at the end of Year 3?

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Homework Answers

Answer #1

Par value of bonds = $100,000

Issue price = 102

Cash received from issue of bonds = Par value of bonds x Issue price

= 100,000 x 102

= $102,000

Premium on bonds payable = Cash received from issue of bonds- Par value of bonds

= 102,000-100,000

= $2,000

Annual amortization of bond premium = Premium on bonds payable/Bond life

= 2,000/10

= $200

Bond premium amortized in 3rd year = Annual amortization of bond premium x 3

= 200 x 3

= $600

Carrying value of bonds at the end of year 3 = Carrying value of bonds at January 1, 2013 - Bond premium amortized in 3rd year

= 102,000-600

= $101,400

Kindly comment if you need further assistance.

Thanks‼!

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