On July 1 2016 Noble Inc issued 9 bonds in the face amount o

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.

Solution

Answer

$ 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