Question

1. On July 1, 2017, Paton Corp. issued 9% bonds in the face amount of $8,000,000, which mature on July 1, 2023. The bonds were issued for $7,648,000 to yield 10%, resulting in a bond discount of $352,000. Paton uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. On June 30, 2019, Paton's unamortized bond discount should be which of the following?

2. The Coral Company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using straight-line amortization, the carrying value of the bonds on December 31, 2020, is...

Answer 1

Solution 1:

Bond Amortization Table
Semiannual interest period end	Cash interest paid	Bond Interest Expense	Discount Amortization	Unamortized Discount	Carrying Value
1-Jul-17				$352,000	$7,648,000
30-Jun-18	$720,000	$764,800	$44,800	$307,200	$7,692,800
30-Jun-19	$720,000	$769,280	$49,280	$257,920	$7,742,080

On June 30, 2019, Paton's unamortized bond discount should be = $257,920

Solution 2:

Discount on issue of bond = $10,000,000 - $9,802,072 = $197,928

Discount amortized from 2017 to 2020 = $197,928*4/20 = $39,586

Unamortized discount on 31.12.2020 = $197,928 - $39,586 = $158,342

Carrying value of bonds on Dec 31, 2020 = $10,000,000 - $158,342 = $9,841,658