Question

a 5-year term bond was issued by a company on january 1, 2017 at a discount. the carrying amount of the bond at december 31, 2018 will be:

Answer 1

the options are missing, so I looked for them:

1. The same as the carrying amount at January 1, 2017.
2. Higher than the carrying amount at December 31, 2017.
3. The same as the carrying amount at December 31, 2017
4. Lower than the carrying amount at December 31, 2017.

The correct option is 2. Higher than the carrying amount at December 31, 2017.

Step-by-step explanation:

When a company issues a bond at a discount the journal entry should be:

Dr Cash

Cr Bonds payable

Cr Discount on bonds payable

As time goes on, the discount on bonds payable is amortized increasing total interest expense, but also increasing the bonds carrying value.