A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2013. Interest is...

Question:

A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2013. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using straight-line amortization, what is the carrying value of the bonds on December 31,2015?

a. $9,835,115

b. $9,970,311

c. $9,816,916

d. $9,831,761

Bond discount

Bonds are issued by companies or corporations in order to raise funds for their operations or other purposes. Because of fluctuations in interest rates, there are differences in the coupon rate and prevailing market rates at the time of issuance. This could result to either a bond discount or a premium. A bond discount results when the issue price is lower than the face value of the bonds while a premium results when the issue price is higher than the face amount of the bonds.

Answer and Explanation: 1

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The straight-line amortization methods requires that the bond discount or premium is uniformly allocated to the term or time period of interest...

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Issuing Bonds at a Discount or a Premium

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Chapter 10 / Lesson 10
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In this lesson, we'll define a bond and discuss how bonds are issued at a premium and discount. You'll also learn the advantages and disadvantages of each.


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