B is corrent. The requirement is to determine the bond carrying amount on December 31 of the current year. The carrying value of the bond can be calculated by completing an amortization table. The interest payment is calculated as the face amount of the bond times the coupon rate, adjusted for the number of payment periods per year, or $2,000 (50,000 × 4% interest for half the year). Interest expense is calculated as the effective rate of 5% times the beginning of the period carrying value. Amortization of discount is the difference between the interest payment and interest expense. This answer is correct because the carrying value at December 31 of the current year is $46,768, as calculated below.
Date Coupon payment 4% Interest expense 5% Amortization of discount Discount on B/P Carrying amount B/P
01-01 -- -- $3,861 $46,139
06-30 $2,000 $2,307 $307 $3,554 $46,446
12-31 $2,000 $2,322 $322 $3,232 $46,768
A is incorrect. The requirement is to determine the bond carrying amount on December 31 of the current year. The carrying value of the bond can be calculated by completing an amortization table. The interest payment is calculated as the face amount of the bond times the coupon rate, adjusted for the number of payment periods per year, or $2,000 (50,000 × 4% interest for half the year). Interest expense is calculated as the effective rate of 5% times the beginning of the period carrying value. Amortization of discount is the difference between the interest payment and interest expense. The carrying value at December 31 of the current year is $46,768, as calculated below.
Date Coupon payment 4% Interest expense 5% Amortization of discount Discount on B/P Carrying amount B/P
01-01 -- -- $3,861 $46,139
06-30 $2,000 $2,307 $307 $3,554 $46,446
12-31 $2,000 $2,322 $322 $3,232 $46,768
C is incorrect. The requirement is to determine the bond carrying amount on December 31 of the current year. The carrying value of the bond can be calculated by completing an amortization table. The interest payment is calculated as the face amount of the bond times the coupon rate, adjusted for the number of payment periods per year, or $2,000 (50,000 × 4% interest for half the year). Interest expense is calculated as the effective rate of 5% times the beginning of the period carrying value. Amortization of discount is the difference between the interest payment and interest expense. The carrying value at December 31 of the current year is $46,768, as calculated below.
Date Coupon payment 4% Interest expense 5% Amortization of discount Discount on B/P Carrying amount B/P
01-01 -- -- $3,861 $46,139
06-30 $2,000 $2,307 $307 $3,554 $46,446
12-31 $2,000 $2,322 $322 $3,232 $46,768
D is incorrect. The requirement is to determine the bond carrying amount on December 31 of the current year. The carrying value of the bond can be calculated by completing an amortization table. The interest payment is calculated as the face amount of the bond times the coupon rate, adjusted for the number of payment periods per year, or $2,000 (50,000 × 4% interest for half the year). Interest expense is calculated as the effective rate of 5% times the beginning of the period carrying value. Amortization of discount is the difference between the interest payment and interest expense. The carrying value at December 31 of the current year is $46,768, as calculated below.
Date Coupon payment 4% Interest expense 5% Amortization of discount Discount on B/P Carrying amount B/P
01-01 -- -- $3,861 $46,139
06-30 $2,000 $2,307 $307 $3,554 $46,446
12-31 $2,000 $2,322 $322 $3,232 $46,768
