Net Work Corporation, whose annual accounting period ends on

Net Work Corporation, whose annual accounting period ends on December 31, issued the following bonds:

Date of bonds: January 1, 2009.

Maturity amount and date: $200,000 due in 10 years (December 31, 2018).

Interest: 10 percent per year payable each December 31.

Date issued: January 1, 2009.

Provide the following amounts to be reported on the January 1, 2009, financial statements immediately after the bonds were issued

January 1, 2009 Financial Statements: Part A Part B Part C

                                       (Issued at 100)       (97)           (101)

(A) Bonds Payable

(B) Unamortized premium (or discount)

(C) Carrying value

Can someone please help me with this problem and explain to me how you got the answer so I know. Thank You.

2 Answers

  • Part A

    (A) Bonds Payable

    This is always the face value, so $200,000

    (B) Unamortized premium (or discount)

    $0, since the bonds are issued at 100%

    (C) Carrying value (CV)

    CV = Face value – Discount on bonds payable OR Face value + Premium on bonds payable, so $200,000

    Part B

    (A) Bonds Payable

    This is always the face value, so $200,000

    (B) Unamortized premium (or discount)

    Since the bonds are issued at 97, i.e. BELOW face value, there would be a discount of $6,000 ($200,000 x 3%)

    (C) Carrying value

    CV = Face value – Discount, so $200,000 – $6,000 = $194,000 (proof: $200,000 x 0.97)

    Part C

    (A) Bonds Payable

    This is always the face value, so $200,000

    (B) Unamortized premium (or discount)

    Since the bonds are issued at 101, i.e., ABOVE face value, there would be a premium of $2,000 ($200,000 x 1%)

    (C) Carrying value

    CV = Face value + Premium, so $200,000 + $2,000 = $202,000 (proof: $200,000 x 1.01)

  • I agree with most of what has been said

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