On January 2, 2015, Wynn Corporation sold $750,000 of bonds for $745,000. The bo

Question

On January 2, 2015, Wynn Corporation sold $750,000 of bonds for $745,000. The bonds will mature in 10 years and pay interest annually on December 31. Wynn properly recorded the payment of interest and amortization of the discount using the effective interest method. Which of the following statements is true about the carrying value of the bonds and/or the unamortized discount at the end of 2015? a. The carrying value will be $745,000. b. The unamortized premium will be less than $5,000. c. The carrying value will be less than $745,000. d. The carrying value will be greater than $745,000.

Explanation / Answer

1) Answer (D) The carrying value will be greater than $745,000

Explanation : It was given that Bonds of face value $750000 was issued for $745000,so bonds were issued at a discount of $5000.Under straight line amortization method bonds discount or premium should be amortized based on the maturity period of bonds.So that normally on the date of issue bonds discount shows debit balance and bonds payable shows credit balance so that net book value or carrying value will be $745000 (750000 - 5000),When ever we amortize bonds discount that amortized portion for that year will be added to bonds carrying value in an indirect way.So that the amortized portion of discount amounts to $500 will be added to bonds carrying value.And bonds carrying value will becomes $745500.

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