Question

E-Tech Initiatives Limited plans to issue $550,000, 10-year, 3 percent bonds. Interest is payable annually on December 31. All of the bonds will be issued on January 1, 2019. Show how the bonds would be reported on the January 2, 2019, balance sheet if they are issued at 96. (Deductions should be indicated by a minus sign.)

Answer 1

The correct answer is $528,000.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Bonds price = $550,000

issued rate = 96%

So, discount rate = 4%

Discount amount = $550,000 × 4% = $22,000

So, we can calculate the carrying value by using following formula:

Carrying value = Bonds price - Discount amount

= $550,000 - $22,000

= $528,000.