5 A company issues 20000000 78 20year bonds to yield 8 on Ja

5. A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31·The proceeds from the bonds are $19,604,144. What will the carrying value of the bonds be on the December 31, 2018 balance sheet?

Solution

Cash interest Interest expense Discount amortized Carrying value Jan-1-17 19604144 Jun-30-17 780000 784166 4166 19608310 Dec-31-17 780000 784332 4332 19612642 Jun-30-18 780000 784506 4506 19617148 Dec-31-18 780000 784686 4686 19621834 Carrying value of the bonds on December 31,2018 = $19621834 If amount is not rounded off, carrying value will be $19621833.75