Question

On January 1, Sheffield Corp. issues $3600000, 5-year, 12% bonds at 94 with interest payable on January 1. What is the carrying value of the bonds at the end of the third interest period?\

Answer 1

$3,513,600

Step-by-step explanation:

The computation fo the carrying value of the bond at the end of third interest period is shown below:

But before that the value of the bond is

= $3,600,000 × 94%

= $3,384,000

Now the difference in amount is

= $3,600,000 - $3,384,000

= $216,000

The interest amount per year would be

= $216,000 ÷ 5 years

= $43,200

For three years it would be

= $43,200 × 3 years

= $129,600

And, finally the carrying value of the bond is

= $3,384,000 + $129,600

= $3,513,600