question archive On September 1, 2002, Gonzalez Company issued $1836000 of 15−year, 10% bonds at 107
On September 1, 2002, Gonzalez Company issued $1836000 of 15−year, 10% bonds at 107
Subject:FinancePrice:2.84 Bought3
On September 1, 2002, Gonzalez Company issued $1836000 of 15−year, 10% bonds at 107. The bonds were dated September 1, 2002, and pay interest on September 1 and March 1. Gonzalez Company uses the straight-line method to amortize the discount or premium.
Assuming that the entry to amortize the discount or premium to date has been made, what is the carrying value of the bonds on December 31, 2005?
The carrying value is $
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$1,935,960
Step-by-step explanation
The bonds were issued at premium because its price is higher than its face value.
Issued price = 1,836,000 x 107% = 1,964,520
Face value = 1,836,000
Premium on bonds payable = 1,964,520 - 1,836,000 = 128,520
Monthly amortization of premium = 128,520 / (15 x 12) = 714
September 1, 2002 to December 31, 2005 = 3 years and 4 months = 40 months
Balance of premium on bonds payable = 128,520 - (40 x 714) = 99,960
Carrying value = Face value + balance of premium = 1,836,000 + 99,960 = 1,935,960
