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In: Accounting

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?

Solutions

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

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