A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2011. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,109.

Using straight-line amortization, what is the carrying value of the bonds on December 31, 2013?

a. $14,752,673

b. $14,955,466

c. $14,725,375

d. $14,747,642

d. $14,747,642

Explanation:

For computing the carrying value of the bonds, first we have to determine the discount amortization for 3 years which are shown below:

= (Issued amount - proceeds from the bonds) : time period * number of years

= ($15,000,000 - $14,703,109) : 20 years * 3 years

= $44,533.80

Now the carrying value would be

= Proceeds from the bonds + discount amortization for 3 years

= $14,703,109 + $44,533.80

= $14,747,642