Question

on january 1 of year 1, congo express airways issued $3,400,000 of 7% bonds that pay interest semiannually on january 1 and july 1. the bond issue price is $3,100,000 and the market rate of interest for similar bonds is 8%. the bond premium or discount is being amortized at a rate of $10,000 every six months. the company's december 31, year 1 balance sheet should reflect total liabilities associated with the bond issue (including interest) in the amount of: multiple choice $3,001,000. $3,799,000. $3,680,000. $3,239,000. $3,120,000.

Answer 1

If the company's December 31, year 1 balance sheet should reflect total liabilities associated with the bond issue (including interest) in the amount of: E. $3,120,000.

How to find the  total liabilities?

Using this formula to determine the total liabilities

Total liabilities = Bond's issue price + (Amortized discount x 2)

Let plug in  the formula

Total liabilities =  $3,100,000 + ($10,000 x 2)

Total liabilities =$3,100,000 + $20,000

Total liabilities = $3,120,000

Therefore the correct option is E.

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