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28 May, 01:53

Crystal Glassware Company issues $1,042,000 of its 14%, 10-year bonds at 97 on February 28,2019. The bonds pay interest on February 28 and August 31. Assume that Crystal uses thestraight-line method for amortization. What net amount will be reported for the bonds on theAugust 31, 2019 balance sheet? A) $1,010,740 B) $1,012,303 C) $1,009,177 D) $1,042,000

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  1. 28 May, 02:09
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    The correct option is B. $1,012,303

    Explanation:

    For computing the net amount, the following calculations are need to be done which is shown below:

    1. Calculation the total value of bond which equals to

    = Issue amount * price

    = $1,042,000 * (97 : 100)

    = $1,010,740

    2. Now compute the discount which shown below:

    = Issue amount - total value

    = $1,042,000 - $1,010,740

    = $31,260

    3. Then, compute the semiannual discount amount by applying the straight line method

    = Discount value : number of years

    where,

    number of year would be multiply by 2 = 2 * 10 = 20 years

    So, the value would be equal to

    = $31,260 : 20 years

    = $1,563

    4. So, the net amount would be

    = Total value of bond + semiannual discount

    = $1,010,740 + $1,563

    = $1,012,303

    Hence, the net amount will be reported for the bonds on the August 31, 2019 balance sheet is $1,012,303

    Therefore, the correct option is B. $1,012,303
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