# Naval Inc. issued \$200,000 face value bonds at a discount and received \$190,000. At the end of 2018, the balance in the Discount on Bonds Payable account is \$5,000. This year’s balance sheet will show a net liability of ________. A. \$200,000 B. \$180,000 C. \$195,000 D. \$205,000

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### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

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FindFindarrow_forward

### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 13, Problem 15MC
Textbook Problem
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## Naval Inc. issued \$200,000 face value bonds at a discount and received \$190,000. At the end of 2018, the balance in the Discount on Bonds Payable account is \$5,000. This year’s balance sheet will show a net liability of ________.A. \$200,000B. \$180,000C. \$195,000D. \$205,000

To determine

Concept introduction:

Bonds:

are defined as debt instruments which are usually issued by the company that borrows to its lenders. They are issued at a rate of interest that is specified and for a specified period of time. The bondholders receive a fixed rate of interest on the bonds and the repayment of the bonds is made at the maturity date.

Amortization of Bonds discount or premium:

The Bonds can be issued at a discount or premium. The discount or premium on issue of bonds or the life of bonds is amortized using the effective rate methods or the straight line method.

To choose:

The net liability on the balance sheet at the end of the year.

### Explanation of Solution

The net liability on the balance sheet at the end of the year is calculated as follows:

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