On July 1, 2016, Noble, Inc. issued 9% bonds in the face amount of $10,000,000, which...

On July 1, 2016, Noble, Inc. issued 9% bonds in the face amount of $10,000,000, which mature on July 1, 2022. The bonds were issued for $9,560,000 to yield 10%, resulting in a bond discount of $440,000. Noble uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2018, Noble's unamortized bond discount should be
a. $322,400.
b. $340,000.
c. $352,000.
d. $310,000.

Expert Solution

The correct answer is Option ‘a’: $ 322,400

$ 322,400 will be the amount of Unamortised Discount on Bonds Payable on June 30, 2018.

Please follow below working for the same:

Period	Cash payment	Interest expense	Discount on Bonds payable/ (Amortised)	Carrying Value of Bond
Issued			$ 4,40,000.00	$ 95,60,000.00
Interest paid on 30-Jun-17	$ 9,00,000.00 [10,000,000 x 9%]	$ 9,56,000.00 [9,560,000 x 10%]	$ (56,000.00) [956000 – 900000]	$ 96,16,000.00 [9560000 + 56000]
Interest paid on 30-Jun-18	$ 9,00,000.00 [10,000,000 x 9%]	$ 9,61,600.00 [9,616,000 x 10%]	$ (61,600.00) [ 961600 – 900000]	$ 96,77,600.00 [9616000 + 61600]

TOTAL	$ 1,800,000	$1,917,600	$ 322,400

ekkarill92 answered 2 years ago

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