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Prepare a bond amortization schedule and record transactions for the bond issuer (LO9-5) [The following information applies to the questions displayed below] On January 1, 2024, Universe of Fun issues $810,000, 8% bonds that mature in 15 years. The market interest rate for bonds of similar risk and maturity is 9%, and the bonds issue for $744,030. Interest is paid semi-annually on June 30 and December 31. Problem 9-7a (Algo) Part 2: What is the bond carrying value immediately after the first interest payment on June 30, 2024?

a. $757,005
b. $747,460
c. $736,500
d. $765,210

1 Answer

3 votes

Final answer:

To calculate the bond carrying value after the first interest payment, you must calculate the interest payment and interest expense, and then amortize the discount. The calculated carrying value is $745,011.35, which doesn't match any of the listed options, suggesting a possible error in the question or need for more information.

Step-by-step explanation:

To determine the bond carrying value immediately after the first interest payment on June 30, 2024, we first calculate the interest payment that Universe of Fun makes, which is based on the stated interest rate on the face value of the bond. Since the bond has a face value of $810,000 and the stated interest rate is 8%, the semi-annual interest payment is ($810,000 × 8%)/2 = $32,400.

Next, we calculate the interest expense based on the market interest rate, which is 9% on the issued price of the bond. The semi-annual interest expense is calculated on the carrying amount of the bond, which initially is the issue price, so it is ($744,030 × 9%)/2 = $33,381.35.

The difference between the interest expense and the interest payment is the amount of discount amortized in this period, which is $33,381.35 - $32,400 = $981.35. The amortization of the discount increases the carrying value of the bond. Therefore, we add the amortized discount to the issue price to find the carrying value after the first payment: $744,030 + $981.35 = $745,011.35.

However, none of the listed options matches this calculated value, indicating that there may be an error in the question or additional information is required to match one of the provided options.

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