Question

Nixon Company reported 10% bonds payable with carrying amount of P5, 700,000 on

January 1, 2020. The bonds had a face amount of P6, 000,000 and were issued to yield

12%.

The interest method of amortization is used. Interest was paid on January 1 and July 1

of each year.

On July 1, 2020, the entity retired the bonds at 102. The interest payment on July 1,

2020 was made as scheduled.

1. What is the carrying amount of the bonds payable on July 1, 2020?

A. 5,700,000

B. 5,742,000

C. 6,000,000

D. 5,658,000

Answer 1

Interest expense

$5,700,000 x 12/100 x 6/12=342,000$

Interest paid

$6,000,000 x 10/100x 6/12=300,000$

Discount amortization

$342000-300000=42000$

Carrying amount of bonds payable -7/1/2020

$5700000+42000=5742000$

$B. 5,742,000$