Final answer:
The net carrying value of the bonds should be shown on Howell's December 31, 2018, balance sheet at $1,036,297.26
Step-by-step explanation:
Determining the net carrying value of the bonds:
Given information:
- Purchase date: November 1, 2018
- Face value of bonds: $1,000 each
- Number of bonds purchased: 1,000
- Total purchase price: $1,052,500
- Accrued interest at purchase: $15,000
- Interest rate: 9%
- Payment frequency: Semiannual (March 1 and September 1)
- Maturity date: January 1, 2023
- Amortization method: Straight-line
Step 1: Calculate the cost of the bonds:
Total cost = Purchase price - Accrued interest
Cost = $1,052,500 - $15,000
Cost = $1,037,500
Step 2: Calculate the amortizable discount:
Discount = Cost - Face value of bonds * Number of bonds
Discount = $1,037,500 - $1,000 * 1,000
Discount = $37,500
Step 3: Determine the period of amortization:
Number of remaining periods = (Maturity date - Purchase date) / (Interest payment frequency)
Number of remaining periods = (2023 - 2018) / 2
Number of remaining periods = 5
Step 4: Calculate the annual amortization amount:
Annual amortization = Discount / Number of remaining periods
Annual amortization = $37,500 / 5
Annual amortization = $7,500
Step 5: Calculate the amortization for the period from November 1 to December 31, 2018:
Days from purchase to year-end = 61 days
Amortization for period = Annual amortization * Days in period / Days in year
Amortization for period = $7,500 * 61 days / 365 days
Amortization for period = $1,202.74
Step 6: Calculate the net carrying value:
Net carrying value = Cost - Amortization
Net carrying value = $1,037,500 - $1,202.74
Net carrying value = $1,036,297.26
Therefore, the net carrying value of the bonds is $1,036,297.26.