On November 1, 2018, Howell Company purchased 1,000 of the $1,000 face value, 9% bonds of...
On November 1, 2018, Howell Company purchased 1,000 of the $1,000 face value, 9% bonds of Ramsey, Incorporated, for $1,052,500, which includes accrued interest of $15,000. The bonds, which mature on January 1, 2023, pay interest semiannually on March 1 and September 1. Assuming that Howell uses the straight-line method of amortization and that the bonds are appropriately classified as available-for-sale, the net carrying value of the bonds should be shown on Howell's December 31, 2018, balance sheet at
a. $1,037,500.
b. $1,036,000.
c. $1,052,500.
d. $1,000,000.
Homework Answers
| calculation of net carrying value of bond | |||||
| par value of bond (1000*1000) = 1000000 | |||||
| carrying value 1 nov = (1052500-15000) = 1037500 | |||||
| purchase cost of bond including interest = 1052500 | |||||
| premium on bond (1037500-1000000) = 37500 | |||||
| maturity period -remaining = 50 | |||||
| amortization of premium = 37500*2/50 = 1500 | |||||
| net carrying value of bond on balance sheet (1037500-1500) | |||||
| net carrying value of bond on balance sheet = 1036000 | |||||
| Option "b" is CORRECT |
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