question archive Reelly Reelly Cheap Vacations Ltd
Reelly Reelly Cheap Vacations Ltd
Subject:AccountingPrice:2.84 Bought7
Reelly Reelly Cheap Vacations Ltd. (RRCV) issued $4,000,000 of 5 year, 4% bonds dated January 1, 2011 with interest payable January 1 and July 1 each year. The proceeds realized from the bond issue was $3,900,000 less $50,000 in bond issue costs. RRCV year end is December 31 and it uses ASPE with straight line amortization of bond premium/discounts, and values bonds at amortized cost on its financial statements.
At December 31, 2014, what is the amortized cost of the bonds payable on RRCV's balance sheet?
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Amortization of bond discount per year:
= ($4,000,000 - $3,900,000) ÷ 5 years
= $100,000 ÷ 5 years
= $20,000
Amortization of bond issue cost per year:
= $50,000 ÷ 5 years
= $10,000
Step-by-step explanation
December 31, 2014
Amortized cost of the bonds payable on RRCV's balance sheet:
• Discount
$20,000×4th year = $80,000
• Bond issue cost
$10,000×4th year = $40,000
Total = $1,20,000
Remaining balance :
=($1,00,000+$50,000) - $1,20,000
= $30,000
Note:
Bonds were issued at a discount of $1,00,000 but actually Liability for bonds payable will be it's face value $4,000,000.
