On January 1 of Year 1, Drum Line Airways issued $3,500,000 of par value bonds f

Question

On January 1 of Year 1, Drum Line Airways issued $3,500,000 of par value bonds for $3,200,000. The bonds pay interest semiannually on January 1 and July 1. The contract rate of interest is 7% while the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a rate of $10,000 every six months. The company's December 31, Year 1 balance sheet should reflect total liabilities associated with the bond issue in the amount of: A. $3,220,000. B. $3,342,500. C. $3,480,000. D. $3,377,500. E. $3,450,000.

Explanation / Answer

$3,342,500

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