Question

A company issues $15700000, 5.8%, 20-year bonds to yield 6% on January 1, 2019. Interest is paid on June 30 and December 31. The proceeds from the bonds are $15337098. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2021

Answer 1

$15,391,533

Step-by-step explanation:

Par value of the bond = $15700000

Coupon rate = 5.8%

Time period = 20 Years

YTM = 6%

Discount amortised = ( $15,700,000 - $15,337,098) ÷ 20

= $362,902 ÷ 20 = $18,145.1

Discount amortised for year 1 = $18,145.1

So, discount amortised for 3 years = $18,145.1 × 3 = $54,435.3

Hence, carrying value of the bonds on Dec. 31, 2021 = $15,337,098 + $54,435.3

= $15,391,533.3 or $15,391,533