Question

On January 1, 2024, Bear Cove Co. issued its 11% bonds in the face amount of $3,000, which mature on January 1, 2034. The bonds were issued for $3,385 to yield 9%. Bear Cove uses the effective-interest method of amortizing the bond premium. Interest is payable annually on December 31. The 12/31/24 bond carrying value is approximately:

Answer 1

Answer: The bond carrying value is approximately $3,332

Explanation:  

Given that

Year    Int. Expense(A)   Interest pmt(B)  Pre. amortization    Bonds carrying val

          9% of previous      11% of face              B-A                    Issue price - prem

          carrying value            value                                                         Amort

0                     0                           0                         0                         $3,385

1            (0.09×3385)         (0.11×3000)          (330 - 304.65)      (3,385 - 25.35 )

                $304.65               $330.00                $25.35                   $3,359.65

2          (0.09×3,359.65)    (0.11×3000)          (330 - 302.37)   (3,359.65-27.63)

                $302.37               $330.00                $27.63                  $3,332.02

The bond carrying value is approximately $3,332