Question

Carla vista co. received proceeds of 5585020 on a 10-year, 8% bonds issued on January 1, 2019. The bonds had a face value of 530000, pay interest annually on December 31, an have a call price of 104. Carla vista uses the straight-line method of amortization. What is the carrying value of the bonds on December 31, 2021

Answer 1

The bond's carrying value was $489,560 when Carla Vista Company received proceeds of $55,85,020 on a 10-year, 8% bond issued on January 1, 2019.

What is amortization?

Amortization is the process of repaying a debt in equal installments over a period of time.

A portion of each payment is applied to the loan principal, while the remainder is applied to interest.

Computation of Carrying value of Bond:

According to the information given in the case,

First, the premium amount must be computed. This sum is calculated as follows:

Premium Amount = Face value of Bond – Proceeds received

Premium Amount = $530,000 – $558,5020

Premium Amount = -$505,5020

Now it's time to figure out the annual amortization value, which may be done by doing the following:

Annual amortization = Premium Amount/Time period

Annual amortization = -$505,5020/10

Annual amortization = -$505,502

Then, the carrying value of the bond will be:

Carrying value of bond = face value – unamortized discount

Carrying value of bond = $530,000- (-$505,502×8%)

Carrying value of bond = $489,560

Therefore, the carrying value of the bond is $489,560.

Learn more about the amortization, refer to:

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