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CPA-00470

FAR - Bond Payable

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#1 cpham1520

cpham1520

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Posted 23 August 2014 - 06:14 PM

Hello,

Below is the question:

On January 2, Year 1, West Co. issued 9% bonds in the amount of $500,000, which mature on January 2, Year 11. The bonds were issued for $469,500 to yield 10%. Interest is payable annually on December 31. West uses the effective interest method of amortizing bond discount. In its June 30, Year 1 balance sheet, what amount should West report as bonds payable?

a.

$469,500

b.

$470,475

c.

$471,025

d.

$500,000

Answer: B

 

I would be appreciated if someone can help me explain why the "bond payable" is $470,475.  I am taking Becker review.  One of the things the instructor emphasized was "bond payable" always booked at the "face amount", which should be $500000 b/c that what will be paid off at the maturity.  Although I understand the amortization concept, I just don't understand the question asks for the "face amount" or carrying value of the bond at June 30, year 1.  Thanks in advance for any help.