I am having one of those mornings where this is all seeming so futile 🙁
Why is your carry value going down if the bond was issued at a discount???
On December 31, Year 1, Arnold, Inc., issued $200,000, 8% serial bonds, to be repaid in the amount of $40,000 each year. Interest is payable annually on December 31. The bonds were issued to yield 10% per year. The bond proceeds were $190,280 based on the present values at December 31, Year 1, of the five annual payments:
Due
Present Value
Date Principal Interest at 12/31/Yr 1
12/31/Yr 2 $40,000 $16,000 $ 50,900
12/31/Yr 3 40,000 12,800 43,610
12/31/Yr 4 40,000 9,600 37,250
12/31/Yr 5 40,000 6,400 31,690
12/31/Yr 6 40,000 3,200 26,830
Arnold amortizes the bond discount by the interest method. In its December 31, Year 2, balance sheet, at what amount should Arnold report the carrying amount of the bonds?
A. $139,380
B. $150,280
C. $153,308
D. $149,100
Answer (C) is correct.
The carrying amount of the bonds at the end of Year 1 equals the proceeds of $190,280. Interest expense for Year 2 at the 10% effective rate is thus $19,028. Actual interest paid is $16,000, discount amortization is $3,028 ($19,028 – $16,000), and the discount remaining at year end is $6,692 [($200,000 face amount – $190,280 issue proceeds) – $3,028 discount amortization]. Given that $40,000 in principal is paid at year end, the December 31, Year 2, carrying amount is $153,308 ($160,000 face amount – $6,692 unamortized discount).
and they ask me why I drink...
FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2
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