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On January 1, Year 1, Weller Company issued bonds with a $220,000 face value, a stated rate of interest of 9.50%, and a 10-year term to maturity. Weller uses the effective interest method to amortize bond discounts and premiums. The market rate of interest on the date of issuance was 7.50%. Interest is paid annually on December 31. Assuming Weller issued the bonds for $236,340, what is the carrying value of the bonds on the December 31, Year 3? (Round your intermediate calculations and final answer to the nearest whole dollar amount.) $240,900 $226,084 $229,753 $233,166

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Thus, in Year 3, the Weller Company will recognize a carrying value of $3,669.

How Does Carrying Value Work?

Carrying value is a type of value measure in accounting where the worth of a firm or asset is determined by the numbers on the balance sheet of the relevant company. Carrying cost is computed as follows for tangible assets like equipment or computer hardware: (original cost - accumulated depreciation). The methodology for determining carrying value is used if a corporation buys a patent or another piece of intellectual property (original cost - amortization expense).

Determining the bond's terms is necessary for the first stage in calculating the carrying value. The following three bond characteristics, for instance, must be separated using the effective interest rate method:

  • Par value of Bond
  • Rate of interest on the bond
  • The date of the bond's maturity

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