Question

joseph max, incorporated, sold 10-year, 5 percent bonds for $1,000,000 at 98. determine the carrying amount of the bonds, including their face value and unamortized discount, at the end of the sixth year the bonds were outstanding.

Answer 1

The carrying amount of the bonds at the end of the sixth year is $992,000, calculated by subtracting the remaining unamortized discount of $8,000 from the face value of $1,000,000.

Step-by-step explanation:

To determine the carrying amount of the bonds at the end of the sixth year, we need to account for the bond's face value and the amortization of the discount over the period in question. Joseph Max, Incorporated, sold 10-year, 5% bonds at 98, which means they were sold at 2% discount of their face value. Assuming the face value is $1,000,000, the discount when the bonds were issued is $20,000 (2% of $1,000,000).

The unamortized discount after six years would be calculated by evenly spreading the discount over the 10-year life of the bonds (straight-line amortization). By the end of six years, 60% of the bond's time has elapsed ($20,000 discount × 60% = $12,000), and 60% of the discount would be amortized, leaving 40% unamortized.

Thus, the unamortized discount remaining would be $8,000 ($20,000 discount - $12,000 amortized amount).

Therefore, to calculate the carrying amount at the end of the sixth year, you subtract the remaining unamortized discount from the face value of the bonds, which would be $992,000 ($1,000,000 face value - $8,000 unamortized discount).