Where does the 1/5 in this calculation come from? carrying value is calculated...
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Accounting
Where does the 1/5 in this calculation come from?
carrying value is calculated as 760,000 x 1/5= 152,000
The problem is: Several years ago Brant, Inc., sold $900,000 in bonds to the public. Annual cash interest of 9 percent ($81,000) was to be paid on this debt. The bonds were issued at a discount to yield 12 percent. At the beginning of 2016, Zack Corporation (a wholly owned subsidiary of Brant) purchased $180,000 of these bonds on the open market for $201,000, a price based on an effective interest rate of 7 percent. The bond liability had a carrying amount on that date of $760,000. Assume Brant uses the equity method to account internally for its investment in Zack.
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