question archive On January 1, 2018, West Company issued 9% bonds in the face amount of P5,000,000, which mature on January 1, 2028
On January 1, 2018, West Company issued 9% bonds in the face amount of P5,000,000, which mature on January 1, 2028
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On January 1, 2018, West Company issued 9% bonds in the face amount of P5,000,000, which mature on January 1, 2028. The bonds were issued for P4,695,000 to yield 10%.
Interest is payable annually on December 31. The entity used the interest method of amortizing bond discount.
On December 31, 2018, what is the carrying amount of the bonds payable?
a. 4,695,000
b. 4,714,500
c. 4,704,750
d. 5,000,000
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Answer:
b .
Step-by-Step explanation
| Interest Expense | 469,500 |
| Interest Paid( 5,000,000x 9%) | (450,000) |
| Amortization Discount 2018 | 19,500 |
| Face amount of bond payable | 5,000,000 |
| Issue Price | (4,695,000) |
| Discount on payable | 305,000 |
| Amortization of discount 2018 | (19,500) |
| Discount on bonds payable Dec. 31, 2018 | 285,500 |
| Bonds payable | 5,000,000 |
|
Discount on Bonds payable, Dec 31, 2018
|
(285,000) |
| Carrying amount Dec 31, 2018 | 4,714,500 |
