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?

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 3 years ago

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