On January 2, 2017, Concrete Master Construction, Inc. issued $500,000, ten-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%. What is the carrying value of the bonds after the first interest payment is made on June 30, 2017

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16-06-2021
Business

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On January 2, 2017, Concrete Master Construction, Inc. issued $500,000, ten-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%. What is the carrying value of the bonds after the first interest payment is made on June 30, 2017

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hyderali230 hyderali230 · Answer 1 · 2021-06-17T03:19:20+02:00

Answer:

The carrying value of the bonds after the first interest payment is made on June 30, 2017, is $571,776

Explanation:

The carrying value of the bond after the first interest payment will be calculated as follow

Carrying value of bond = Bond Issuance value - Amortization of Bond premium

Where

Bond Issuance value = $574,540

Amortization of bond premium = Coupon payment - ( Bond issuance value x Market rate ) = ( $500,000 x 8% x 6/12 ) - ( $574,540 x 6% x 6/12 ) = $20,000 - $17,236 = $2,764

Placing values in the formula

Carrying value of bond = $574,540 - $2,764

Carrying value of bond = $571,776