[jdj017400]

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

Becker’s answer is b. I understand the calculation to come to $470,475, however, my confusion is with the wording of this question.

I would have thought the Balance Sheet would/should show both “Bonds Payable” of 500,000 AND the corresponding “Unamortized Discount” amount of $29,525. So based on the wording of this question (because it asked for “Bonds Payable” and not “Carrying Value/Book Value”) I think the answer should be “d. $500,000”.

Can someone please explain if I am incorrect in my understanding or if this is just a poorly worded question?

BEC - 80 (11/30/2010), Lost Credit - Retake 11/30/2012, 80 (FINISHED!)
AUD - 71 (05/31/2011), 79 (08/28/2011)
REG - 70 (11/30/2011), 87 (02/09/2012)
FAR - 61 (5/31/2012), 80 (08/31/2012)