Question

A company issues $14600000, 9.8%, 20-year bonds to yield 10% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14349477. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2020 balance sheet? $14363090 $14353728 $14600000 $14351551

Answer 1

The correct option is $14,353,728

Step-by-step explanation:

The carrying value of the bond using effective interest comprises of the proceeds from the issue with interest added(based on the proceeds) minus the coupon interest paid for the year as shown below

Periods Bal b/f interest at10%/2 coupon interest at9.8% Bal c/f

1 $14,,349477 $717,473.85 -$715,400.0 $14,351,550.85

2 $14,351,550.85 $717,577.54 -$715,400.0 $14,353,728.39

The closing balance is the opening balance plus interest minus the coupon interest,which invariably gives $14,353,728.39 at the end of the year 2020