On January 1 of Year 1, Congo Express Airways issued $2,500,000 of 5% bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $2,260,000 and the market rate of interest for similar bonds is 6%. The bond premium or discount is being amortized at a rate of $8,000 every six months. The company's December 31, Year 1 balance sheet should reflect total liabilities associated with the bond issue in the amount of

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    A. $141,000.

    B. $2,338,500.

    C. $109,000.

    D. $125,000.

    E. $150,000.

Answer: B. $2,338,500.

Discount on Bonds Payable, Begin $240,000
Less Year 1 amortization 16,000($8,000 * 2) = $16,000
Unamortized Discount, Ending $224,000
Par Value of the bonds $2,500,000
- Unamortized discount 224,000

Carrying Value of bonds $2,276,000
+ Interest accural on Dec.31 62,500 ($2,500,000 × 5% × 6/12) $2,338,500

Business

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