How to calculate the unamortized bond discount?
On January 1, A issued $ 1,000,000, 9%bonds for
$ 939,000 (market rate is 10%). Interest is payable
annually on December 31. At the year end the amount of
the unamortized bond discount is?
The answer to the problem is $ 57,100... How do you get this answer?
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Answer by Sandy
When the bond was issued,
Dr Cash $ 939,000
Dr Bond discount $ 61,000
Cr Bond payable $ 1,000,000
The 1st yr bond interest is $ 939,000 at market rate of 10%, i.e. $ 93,900, so at the 1st interest payment date,
Dr Interest expense $ 93,900
Cr Bond discount (amortization) $ 3,900
Cr Cash $ 90,000
Bond discount, at start $ 61,000
less 1st yr amortization ($ 3,900)
Unamortized balance $ 57,100
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