on january 1, 2024, solo incorporated issued 1,300 of its 8%, $1,000 bonds at 97.7. interest is payable semiannually on january 1 and july 1. the bonds mature on january 1, 2034. solo paid $52,000 in bond issue costs. solo uses straight-line amortization. what is the carrying value of the bonds reported in the december 31, 2024, balance sheet?

A bond is a fixed income investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and sovereign governments to raise money and finance a variety of projects and activities. Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes, along with stocks and cash equivalents. They are essentially a loan agreement between the borrower and the bondholder, where the borrower agrees to pay back the loan with interest on a specific date.

To calculate this, we must first find the amount of bond issue costs that need to be amortized. The total bond issue cost was $52,000, and since the bond has a 10 year term, the amount of bond issue costs to be amortized in the first year is $5,200 ($52,000/10 years).
Next, we must calculate the effective interest rate. The stated interest rate is 8%, and the bond was issued at a discount of 2.3%, so the effective interest rate is 10.3% (8% + 2.3%).
Finally, we need to calculate the carrying value. The carrying value is calculated by multiplying the principal of the bond (1,300 x $1,000) by the effective interest rate (10.3%) and subtracting the amount of bond issue costs to be amortized for the year ($5,200). This yields the carrying value of $1,267,600 ($1,300,000 x 10.3% - $5,200).

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