A is corrent. The carrying value of the bonds is their face amount ($500,000) less the unamortized discount. Since the bonds were issued at $475,000 ($500,000 x .95) the original discount was $25,000. Using the straight-line method of amortization, 1/10 of the discount would be amortized during the first year (1/10 x $25,000 = $2,500). Therefore, the unamortized discount at 12/31/10 is $22,500 ($25,000 — $2,500), and the carrying value is $477,500 ($500,000 — $22,500). The bond issue costs of $20,000 can be disregarded, since these are appropriately recorded as a deferred charge and reported in the asset section of the balance sheet.
B is incorrect. The carrying value of the bonds is their face amount ($500,000) less the unamortized discount. Since the bonds were issued at $475,000 ($500,000 x .95) the original discount was $25,000. Using the straight-line method of amortization, 1/10 of the discount would be amortized during the first year (1/10 x $25,000 = $2,500). Therefore, the unamortized discount at 12/31/10 is $22,500 ($25,000 — $2,500), and the carrying value is $477,500 ($500,000 — $22,500). The bond issue costs of $20,000 can be disregarded, since these are appropriately recorded as a deferred charge and reported in the asset section of the balance sheet.
B is incorrect. The carrying value of the bonds is their face amount ($500,000) less the unamortized discount. Since the bonds were issued at $475,000 ($500,000 x .95) the original discount was $25,000. Using the straight-line method of amortization, 1/10 of the discount would be amortized during the first year (1/10 x $25,000 = $2,500). Therefore, the unamortized discount at 12/31/10 is $22,500 ($25,000 — $2,500), and the carrying value is $477,500 ($500,000 — $22,500). The bond issue costs of $20,000 can be disregarded, since these are appropriately recorded as a deferred charge and reported in the asset section of the balance sheet.
D is incorrect. The carrying value of the bonds is their face amount ($500,000) less the unamortized discount. Since the bonds were issued at $475,000 ($500,000 x .95) the original discount was $25,000. Using the straight-line method of amortization, 1/10 of the discount would be amortized during the first year (1/10 x $25,000 = $2,500). Therefore, the unamortized discount at 12/31/10 is $22,500 ($25,000 — $2,500), and the carrying value is $477,500 ($500,000 — $22,500). The bond issue costs of $20,000 can be disregarded, since these are appropriately recorded as a deferred charge and reported in the asset section of the balance sheet.
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