Question

On January 1, 2024, Bear Cove Co. issued its 11% bonds in the face amount of $3,000, which mature on January 1, 2034. The bonds were issued for $3,385 to yield 9%. Bear Cove uses the effective-interest method of amortizing the bond premium. Interest is payable annually on December 31. The 12/31/24 bond carrying value is approximately:

Answer 1

Answer: The bond carrying value is approximately $3,332

Explanation:

Given that

Year Int. Expense(A) Interest pmt(B) Pre. amortization Bonds carrying val

9% of previous 11% of face B-A Issue price - prem

carrying value value Amort

0 0 0 0 $3,385

1 (0.09×3385) (0.11×3000) (330 - 304.65) (3,385 - 25.35 )

$304.65 $330.00 $25.35 $3,359.65

2 (0.09×3,359.65) (0.11×3000) (330 - 302.37) (3,359.65-27.63)

$302.37 $330.00 $27.63 $3,332.02

The bond carrying value is approximately $3,332