On October 1, 2020, Wenn Company purchased 800 of the $1,000 face value, 8% bonds of Loy, Inc., for $936,000, including accrued interest of $16,000. The bonds, which mature on January 1, 2027, pay interest semiannually on January 1 and July 1. Wenn used the straight-line method of amortization and appropriately recorded the bonds as available-for-sale. On Wenn's December 31, 2021 balance sheet, the carrying value of the bonds is

a. $920,000.

b. $912,000.

c. $908,800.

d. $896,000.

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andromache andromache · Answer 1 · 2020-09-05T04:46:40+02:00

Answer:

d. $896,000.

Explanation:

The computation of the carrying value of the bond is shown below:

The amount after excluding the interest part is

= $936,000 - $16,000

= $920,000

The premium amount is

= $920,000 - 800 × $1,000

= $920,000 - $800,000

= $120,000

Now the premium amortizaton is

= $120,000 × 15 ÷ 75

= $24,000

So, the carrying value is

= $920,000 - $24,000

= $896,000

hence, the correct option is d. $896,000