Wayne Company issued bonds with a face value of $990,000, a 11% stated rate of interest, and a 10-year term. The bonds were issued on January 1, Year 1, and Wayne uses the straight-line method of amortization. Interest is paid annually on December 31. Assuming Wayne issued the bonds for 104, the carrying value of the bonds on the December 31, Year 1 balance sheet would be:

the carrying value is  $1,025,640

Explanation:

The computation of the carrying value of the bonds is shown below:

Given that

The Face value of the Bond is $990,000

Now  

Issue Price is

= $990,000 × 1.04

= $1,029,600

Now

Premium on Bonds Payable is

= $1,029,600 - $990,000

= $39,600

Semi-annual Bond Amortization is

= $39,600 ÷ 10 Years

= $3,960

And, finally carrying value is

= $1,029,600 - $3,960

= $1,025,640

Hence, the carrying value is  $1,025,640

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