Three years ago on January 1, 2022, American Insulation Company issued 10%, $800,000, 10-year bonds for $770,000. Debt transaction costs were $3,000. American Insulation exercised its call privilege.

A) What is the carrying amount of the bonds at the time of the call exercise?

1. $770,000
2. $797,000
3. $797,000 (carrying amount) + $3,000 (debt transaction costs)
4. $800,000