On July 1, 2005, J & J, Inc. issued 9% bonds in the face amount of...

On July 1, 2005, J & J, Inc. issued 9% bonds in the face amount of $5,000,000, which mature on July 1, 2015. The bonds were issued for $4,695,000 to yield 10%, resulting in a bond discount of $305,000. J & J uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2007, J & J’s unamortized bond discount should be how much?

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Expert Solution

All working forms part of the answer
Lets prepare Partial Amortisation table for the answer

Period	Cash Interest	Interest Expense	Discount Amortised	Unamortised Discount	Carrying Value
	[A = 5000000 x 9%]	[B = Last 'E' x 10%]	[C = B - A]	[D = D - C]	[E = E + C]
01-Jul-05				$ 305,000.00	$ 4,695,000.00
30-Jun-06	$ 450,000.00	$ 469,500.00	$ 19,500.00	$ 285,500.00	$ 4,714,500.00
30-Jun-07	$ 450,000.00	$ 471,450.00	$ 21,450.00	$ 264,050.00 = Answer	$ 4,735,950.00

Answer: Unamortised Bond Discount on 30 Jun 2007 = $ 264,050

ekkarill92 answered 1 year ago

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