Question

On January 1, 2018, Waller Sales issued $30,000 in bonds for $23,300. These are eight-year bonds with a stated rate of 11%, and pay semiannual interest. Waller Sales uses the straight-line method to amortize the bond discount. After the second interest payment on December 31, 2018, what is the bond carrying amount

Answer 1

The bond carrying amount after the second interest payment on December 31, 2018, is $24,137.50, determined by adding the amortized discount for two periods to the discounted issuance price of Waller Sales' bonds.

Step-by-step explanation:

To determine the carrying amount of Waller Sales' bonds on December 31, 2018, we must first calculate the semiannual interest payment, the total bond discount, and the amount of discount amortized each period using the straight-line method.

The semiannual interest payment is calculated as follows: $30,000 (face value) × 11% (stated interest rate) × 1/2 (since interest is paid semiannually) = $1,650.

The total bond discount at issuance is the difference between the face value and the issuance price: $30,000 - $23,300 = $6,700.

The discount amortized each period over the life of the bonds using the straight-line method is: $6,700 (total discount) ÷ 16 (total number of semiannual periods over 8 years) = $418.75.

After the second interest payment, two periods of discount will have been amortized. Therefore, the carrying amount is calculated as: $23,300 (issuance price) + 2 × $418.75 (amortized discount for two periods) = $24,137.50.

So, after the second interest payment on December 31, 2018, the bond carrying amount would be $24,137.50.

Answer 2

$23,719

Step-by-step explanation:

The computation of the bond carrying amount is shown below:

Bond Payable $30,000

Less: Discount on Bonds Payable

[$6,700 - ((($30,000 - $23,300 ) ÷ 8 years ) × (6 months ÷ 12 months ))] $6,281

Bond Carrying Amount $23,719

The $6,700 is come from

= $30,000 - $23,300

And, since it is mentioned that the interest is on semi annual so we considered 6 months