Question

5) On January 1, a company issued and sold a $400,000, 7%, 10-year bond payable, and received proceeds of $396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The carrying value of the bonds immediately after the first interest payment is: A) $400,000 B) $399,800. C) $400,200. D) $395,800. E) $396,200.

Answer 1

$ 400,000 $ 396,000 face value of bonds proceeds received i.e. carrying value on issue date discount on bonds payable I total semiannual periods = discount amortization per period $ 4,000 20 200 $ carrying value after first interest payment = $396,000 + 200 = $396,200 hence, the correct answer is E) $396,200