Question

On January 2, 2016, Concrete Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%. What is the carrying value of the bonds after the first interest payment is made on June 30, 2016

Answer 1

$569.540

Step-by-step explanation:

The carrying value of the bonds = face value + any premium - any discount

Face value: $500,000

Premium from selling price higher than par value = $574,540 - $500,000

= $74,540

Discount from first interest expense higher than market rate = $500,000 * (8% - 6%)/ 2 = $5,000

The carrying value = $500,000 + $74,540 - $5,000 = $569.540