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On January 1, Year 1, Wayne Company issued bonds with a face value of $600,000, a 6% stated rate of interest, and a 10-year term. Interest is payable in cash on December 31 of each year. Wayne uses the straight-line method to amortize bond discounts and premiums.

-Assuming Wayne issued the bonds for 102.5,what is the carrying value of the bonds on the December 31,Year 1 balance sheet?
A)$601,500
B)$613,500
C)$615,000
D)$616,500

Question

[The following information applies to the questions displayed below.]

On January 1, Year 1, Wayne Company issued bonds with a face value of $600,000, a 6% stated rate of interest, and a 10-year term. Interest is payable in cash on December 31 of each year. Wayne uses the straight-line method to amortize bond discounts and premiums.

-Assuming Wayne issued the bonds for 102.5,what is the carrying value of the bonds on the December 31,Year 1 balance sheet?
A)$601,500
B)$613,500
C)$615,000
D)$616,500

Quizplus · Accepted Answer

Issue price = Face value of $600,000 × 102.5% = $615,000
Premium = Issue price of $615,000 - Face value of $600,000 = $15,000
Annual amortization of premium = $15,000 ÷ 10 years = $1,500
Carrying value at December 31,Year 1 = Issue price of $615,000 - Year 1 amortization of premium $1,500 = $613,500

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