Question

On january 1, 2017, toland sales issued $26,000 in bonds for $20,300. these are eight-year bonds with a stated interest rate of 14% pay semiannual interest. toland sales uses the straight-line method to amortize the bond discount. what is the bond carrying amount after the first interest payment on june 30, 2017? (round your intermediate answers to the nearest dollar.)

group of answer choices
a. $26,000
b. $17,806
c. $20,656
d. $23,506

Answer 1

The carrying amount of Toland Sales' bond after the first interest payment on June 30, 2017, is $20,656, calculated by amortizing the bond discount using the straight-line method and adding it back to the issue price.

Step-by-step explanation:

To calculate the carrying amount after the first interest payment on June 30, 2017, for Toland Sales' bond issued on January 1, 2017, we need to follow these steps:

1. First, calculate the total bond discount by subtracting the issue price from the face value of the bond. In this case, $26,000 (face value) - $20,300 (issued price) = $5,700.
2. Next, we need to determine the annual amortization of the discount, which is done using the straight-line method. This means the discount is divided equally over the life of the bond. For an eight-year bond that pays semiannual interest, there are 16 total payments. So, the annual amortization is $5,700 / 16 or $356.25 per semiannual period.
3. Then, we add the amortized amount back to the issue price to find the carrying amount after the first payment. $20,300 (issued price) + $356.25 (amortized amount) = $20,656.25.

Therefore, after the first interest payment, the carrying amount of the bond will be $20,656 (rounded to the nearest dollar).