Question

Sikes Corporation, whose annual accounting period ends on December 31, issued the following bonds: Date of bonds: January 1, 2018 Maturity amount and date: $180,000 due in 10 years (December 31, 2027) Interest: 10 percent per year payable each December 31 Date issued: January 1, 2018 Required: 1. For each of the three independent cases that follow, provide the amounts to be reported on the January 1, 2018, financial statements immediately after the bonds are issued. TIP: See Exhibit 10.5 for an illustration distinguishing Bonds Payable from their carrying value. (Deductions should be indicated by a minus sign.) Case A (At 100) Case B (At 96) Case C (At 102) January 1, 2018—Financial statements: a. Bonds payable n Unamortized premium (or discount) c. Carrying value

Answer 1

In the first Scenario,

If the Bonds were issued at face value, Bonds Payable will be shown at its face value of $ 180000 and same will be the carrying value since there is no unamortized Premium.

In the second Scenario,

In the given case, Bonds were issued at Discount of $ 4 per Bond is., Total Unamortized Discount on the date of Issuance of Bonds is ($180000/100)*4 =-$7200. Bonds Payable will be shown at its Face Value of $ 180000 and Carrying Amount will be Bonds Payable minus Unamortized Deiscount = $180000-$7200= $172800

In the Third Scenario,

In the given case, Bonds were issued at Premium of $ 2 per Bond is., Total Unamortized Premium on the date of Issuance of Bonds is ($180000/100)*2 =$3600. Bonds Payable will be shown at its Face Value of $ 180000 and Carrying Amount will be Bonds Payable Plus Unamortized Premium = $180000+$3600= $183600

Summary

	Case I	Case II	Case III
Bonds Payable	$ 1,80,000.00	$ 1,80,000.00	$ 1,80,000.00
Unamortized Premium/(Discount)	$                  -	-$      7,200.00	$      3,600.00
Carrying Value	$ 1,80,000.00	$ 1,72,800.00	$ 1,83,600.00

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