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8 February, 20:47

In October 1, 2018, Renfro Company purchased to hold to maturity, 4,000, $1,000, 9% bonds for $3,960,000 which includes $60,000 accrued interest. The bonds, which mature on February 1, 2027, pay interest semiannually on February 1 and August 1. Renfro uses the straight-line method of amortization. The bonds should be reported in the December 31, 2018 balance sheet at a carrying value of

A. $3,903,000.

B. $3,960,000.

C. $3,900,000.

D. $3,961,750.

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  1. 8 February, 21:10
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    A. $3,903,000.

    Explanation:

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

    But before that first we have to do following calculations

    The value of the bonds is

    = $3960,000 - $60,000

    = $39,00,000

    Since it is a accrued interest and the same is to be deducted

    Now the bond sold at discount so the amount would be

    = $4,000,000 - $ 3,900,000

    = $100,000

    And, the period of the bonds is October 1, 2018 to February 1, 2027 i. e 100 months

    = 3 months in 2018 + 96 months + 1 months in 2027

    The 96 months represents the 8 years

    And, discount amortized from October 1, 2018 to December 31, 2018 is

    = $100,000 * 3 : 100

    = $3,000

    The 3 represents the 3 months and 100 represent the total months

    So, the carrying value of the bonds is

    = $3,900,000 + $3,000

    = $3,903,000
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