Crystal Glassware Company issues $1,042,000 of its 14%, 10-year bonds at 97 on February 28,2019. The bonds pay interest on February 28 and August 31. Assume that Crystal uses thestraight-line method for amortization. What net amount will be reported for the bonds on theAugust 31, 2019 balance sheet? A) $1,010,740 B) $1,012,303 C) $1,009,177 D) $1,042,000

Question

Thomas Dunlap

Business

9 May, 20:54

Crystal Glassware Company issues $1,042,000 of its 14%, 10-year bonds at 97 on February 28,2019. The bonds pay interest on February 28 and August 31. Assume that Crystal uses thestraight-line method for amortization. What net amount will be reported for the bonds on theAugust 31, 2019 balance sheet? A) $1,010,740 B) $1,012,303 C) $1,009,177 D) $1,042,000

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Answers (1)

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Steve Ponce · Answer 1

The correct option is B. $1,012,303

Explanation:

For computing the net amount, the following calculations are need to be done which is shown below:

1. Calculation the total value of bond which equals to

= Issue amount * price

= $1,042,000 * (97 : 100)

= $1,010,740

2. Now compute the discount which shown below:

= Issue amount - total value

= $1,042,000 - $1,010,740

= $31,260

3. Then, compute the semiannual discount amount by applying the straight line method

= Discount value : number of years

where,

number of year would be multiply by 2 = 2 * 10 = 20 years

So, the value would be equal to

= $31,260 : 20 years

= $1,563

4. So, the net amount would be

= Total value of bond + semiannual discount

= $1,010,740 + $1,563

= $1,012,303

Hence, the net amount will be reported for the bonds on the August 31, 2019 balance sheet is $1,012,303

Therefore, the correct option is B. $1,012,303