ExpertMedium1 markMultiple Choice
CPA · Question 45 · Area II: Technical Accounting
A company issues a $1,000,000 bond at 98. The bond has a 5-year term. The company incurs $20,000 in debt issuance costs. What is the initial carrying amount of the bond liability?
A company issues a $1,000,000 bond at 98. The bond has a 5-year term. The company incurs $20,000 in debt issuance costs. What is the initial carrying amount of the bond liability?
Answer options:
A.
$1,000,000
B.
$980,000
C.
$960,000
D.
$980,000 Liability and $20,000 Asset
How to approach this question
Carrying Amount = Face - Discount - Issuance Costs. Or: Proceeds - Issuance Costs.
Full Answer
C.$960,000✓ Correct
Under ASU 2015-03, debt issuance costs are presented as a direct deduction from the carrying amount of the debt liability, similar to debt discounts. Initial Liability = ($1,000,000 × 0.98) - $20,000 = $960,000.
Common mistakes
Recording issuance costs as a deferred charge (asset).
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