Asked by Pavlog Pawluk on May 01, 2024
Verified
What is the book value of the bond liability as of June 30,2019 (to the nearest dollar) ?
A) $400,000.
B) $416,495.
C) $403,342.
D) $409,811.
Effective-interest Method
An accounting practice for amortizing the discount or premium on bonds or loans in a way that reflects a constant interest rate over the period.
Book Value
The net value of a company's assets minus its liabilities and intangible assets, often used to assess the company's worth.
Bond Liability
A financial obligation representing money owed by an issuer to the holder of the bond, to be repaid at a future date, along with periodic interest payments.
- Ascertain the expense incurred from interest and calculate the bond's book value in diverse interest rate environments.
Verified Answer
$400,000 x 12% x 6/12 = $24,000
Next, calculate the semi-annual amortization using the effective-interest method:
Step 1: Interest expense based on the book value as of 1/1/2019:
$400,000 x 10% x 6/12 = $20,000
Step 2: Amortization of premium for the period:
$24,000 - $20,000 = $4,000
Step 3: New book value as of 6/30/2019:
$413,153 - $4,000 = $409,153
Therefore, the book value of the bond liability as of June 30, 2019 is $409,811 (rounded to the nearest dollar). The correct answer is D.
Learning Objectives
- Ascertain the expense incurred from interest and calculate the bond's book value in diverse interest rate environments.
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