Question
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31. On January 1, Patterson Inc. issued $4,000,000, 9% bonds for $3,756,000. The market rate...
31. On January 1, Patterson Inc. issued $4,000,000, 9% bonds for $3,756,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effective-interest method of amortizing bond discount. At the end of the second year, Patterson should report unamortized bond discount of
a. $118,400.
b. $228,400.
c. $211,240.
d. $204,000.
Solutions
Expert Solution
| Q31 c. $211,240. | ||||||
| Face Value | 4,000,000.00 | |||||
| Issue Price | 3,756,000.00 | |||||
| Bond Discount | 244,000.00 | |||||
| Date | Interest Payment = Stated Value *9% = A | Interest Exp= Prev BV*10% = B | Amortisation of Bond Dis = B-A | DR bal in Bond Dis C | Cr Bal in Bond Payable D | Book Value of Bonds = D-C |
| Jan 01 | 244,000.00 | 4,000,000.00 | 3,756,000.00 | |||
| Year 01 - Dec 31 | 360,000.00 | 375,600.00 | 15,600.00 | 228,400.00 | 4,000,000.00 | 3,771,600.00 |
| Year 02 - Dec 31 | 360,000.00 | 377,160.00 | 17,160.00 | 211,240.00 | 4,000,000.00 | 3,788,760.00 |
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