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Sparks Company received proceeds of $634,500 on 10-year, 8% bonds issued on January 1, 2016. The...

Sparks Company received proceeds of $634,500 on 10-year, 8% bonds issued on January 1, 2016. The bonds had a face value of $600,000, pay interest annually on December 31st, and have a call price of 102. Sparks uses the straight-line method of amortization. What is the carrying value of the bonds on January 1, 2018?

$600,000

$627,600

$572,400

$631,050
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Answer #1
Date Account Titles and Explanation Debit Credit
01/01/2016 Cash $                       634,500
              Bonds Payable $             600,000
              Premium on bonds payable $               34,500
(To record issue of bonds on premium)
Net Carrying Value of Bonds on 01/01/2016 $                                                              634,500
Amortization Schedule
Period Ending Beginning of period Net Carrying Value of Bonds Payable Amount of Payment Premium Amortization (34500/10) Interest Expense End of period Net Carrying Value (Beginning balance - Premium amortization)
a b c d e = c-d h = b - d
31/12/2016 $     634,500 $                                                  48,000 $                           3,450 $               44,550 $              631,050
31/12/2017 $     631,050 $                                                  48,000 $                           3,450 $               37,863 $              627,600
Net Carrying Value of Bonds on 31/12/2016 $                                                              627,600
(a) Unamortized Bond Premium Balance on Jan 1, 2018 :-
Balance in Premium on Bonds payable Account on Jan 1, 2016 $                                 34,500
Less: Amortization of Bond Premium on 31/12/2016 (34500/10 years =3450) $                                    3,450
Less: Amortization of Bond Premium on 31/12/2017 (34500/10 years =3450) $                                    3,450
Unamortized Bond Premium Balance on Jan 1, 2018 $                                 27,600
(b) Net Carrying Value of Bonds on Jan 1, 2018 :-
Unamortized Bond Premium Balance on Jan 1, 2018 $                                 27,600
Balance of Bonds payable as on Jan1, 2018 $                               600,000
Net Carrying Value of Bonds on Jan 1, 2018 $     627,600
Option B $627600 is correct answer

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