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On january 1, 2019, a company issued $400,000 of 10-year, 12% bonds. The interest is payable semi-annually on june 30 and december 31. The issue price was $413,153 based on a 10% market interest rate. The effective-interest method of amortization is used. What is the book value (carrying value) of the bond liability as of june 30, 2019 (to the nearest dollar)?.

Respuesta :

ogorwyne

The book value of the bond liability is $409811

First of all we have to calculate the cash that was paid for interest

This interest is payable semiannually that is 6 months out of 12 months

6/12 = 0.5

The bond is 12% = 0.12

= 400000 * 0.12 * 0.5

= 24000 dollars

The interest =

413153 * 10% * 0.5

= 20658 dollars

The reduction = 24000-20658

= 3342 dollars

The carrying value after the first payment

= 413153-3342

= $409811

The book value of the bond liability is $409811

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