Question

Knowledge Check 01 On December 31, 2019, Wintergreen, Inc., issued $150,000 of 7 percent, 10-year bonds at a discount of $10,125. The bonds pay interest semiannually. Wintergreen uses the straight-line bond amortization method. The entry to record each interest payment includes a debit to Bond Interest Expense for $5,756, a credit to Discount on Bonds Payable for $506, and a credit to Cash for $5,250. At December 31, 2020, the carrying value of the bonds will equal _____.

Answer 1

Answer:

Carrying value of bond = $140,887 .50

Explanation:

Balance in discount on bonds account as on Dec 31, 2019 = Total discount on bonds - amortized discount on 30 June, 2019 - discount amortized on Dec 31, 2019

= $10,125 - $506.25 -$506.25

= $9,112.50

Carrying value of the bond = Face value of bond - Balance in discount on bonds account.

= $150,000 - $9,112.50

= $140,887 .50

Note:

Amortization of discount on bonds = Total discount on bond / total number of interest payments

= $10125/(10×2)

= $10125/20

= $506.25