Question

On January 1, 2019, Barton Company issued $200,000, five-year, 10% bonds for $191,000. The bonds were dated January 1, 2019, and interest is payable each January 1 and July 1. Barton uses the straight-line method of amortization. How much is the book value of the bonds after the December 31, 2022 interest payment was recorded using the straight-line method of amortization?

A.$200,000.
B.$191,000.
C.$192,800.
D.$198,200.

Answer 1

The book value of Barton Company's bonds after the December 31, 2022 interest payment is $198,200, which is calculated using the straight-line method of bond discount amortization over the bond's 5-year term.

Step-by-step explanation:

To calculate the book value of Barton Company's bonds after the December 31, 2022 interest payment using the straight-line method of amortization, firstly, we need to determine the total amount of the discount, which is the difference between the face value of the bonds ($200,000) and the issue price ($191,000). That amount is $9,000. The bond discount is amortized over the lifespan of the bonds, which is 5 years in this case, resulting in an amortized amount of $1,800 annually ($9,000 / 5 years).

The interest payment is recorded twice a year, so the semi-annual amortization is $900 ($1,800 / 2). By December 31, 2022, the company will have completed four full years of bond life, accounting for 8 interest payments. The accumulated amortization would be $7,200 ($900 x 8). To get the book value of the bonds by the end of December 31, 2022, we add this accumulated amortization to the issue price: $191,000 (issue price) + $7,200 (accumulated amortization) = $198,200. Thus, the book value of the bonds after the December 31, 2022 interest payment is $198,200.