Question

On January​ 1, 2018​, Plummer Company issued $ 400 comma 000 of 10​%, five​-year bonds payable at 107. Plummer Company has extra cash and wishes to retire the bonds payable on January​ 1, 2019​, immediately after making the second semiannual interest payment. To retire the​ bonds, Plummer pays the market price of 94. Read the requirementsLOADING.... ​(Assume bonds payable are amortized using the​ straight-line amortization​ method.) Requirement 1. What is Plummer ​Company's carrying amount of the bonds payable on the retirement​ date?

Answer 1

Bond carrying value is $422,400

Step-by-step explanation:

The company's carrying value of bonds payable on retirement date can be deduced from the computation below:

First of all,the bonds were at a premium of 7%,hence cash realized from bonds issue =$400,000*107%=$428,000

Premium on bond issue= $428,000-$400,000=$28,000

The bond premium amortization=total premium/bond life

bond life is 5 years

bond premium amortization=$28,000/5=$5600 per year

At retirement date,the premium of one year would have been amortized,as result bond carrying value is now cash proceeds minus amortized premium

bond carrying value=$428,000-$5,600=$422,400