Chapter D, Problem 1SSQ

To determine

Ascertain the amount at which the bonds should be reported on Incorporation S’s balance sheet at December 31.

Answer to Problem 1SSQ

The amount at which the bonds should be reported on Incorporation S’s balance sheet at December 31 is Option b. $96,640.

Explanation of Solution

Held-to-maturity securities:

The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities.

Calculate the year-end bond value.

$\begin{array}{c}\text{Year-end bond value}=\left(\begin{array}{l}\text{Purchased value +}\\ \text{Discount amortization value}\end{array}\right)\\ =\text{\$96,400}+\text{\$240}\\ =\$96,640\end{array}$

Working Note:

Calculate the discount amortization value.

$\begin{array}{c}\text{Discount amortization value}=\left(\begin{array}{l}\left(\frac{\left(\text{Face value}-\text{Purchased value}\right)}{\text{Total number of period}}\right)\times \\ \text{Period completed}\end{array}\right)\\ =\frac{\left(\text{\$100,000}-\text{\$96,400}\right)}{\text{30 period}}\times \text{2 period}\\ =\text{\$240}\end{array}$

The above calculated value is not matching with the options a, c and d. Option b. is matching with the above calculated value, that is, $96,640. Hence, the amount at which the bonds should be reported on Incorporation S’s balance sheet at December 31 is $96,640.