Question

On January 1, 2018, Solis Co. issued its 10% bonds in the face amount of $8,000,000, which mature on January 1, 2028. The bonds were issued for $9,080,000 to yield 8%, resulting in bond premium of $1,080,000. Solis uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31.

At December 31, 2018, Solis's adjusted unamortized bond premium should be:

a. $1,080,000.
b. $1,006,400.
c. $972,000.
d. $812,000.

Answer 1

Unamortized Premium = $1,006,400

so correct option is b. $1,006,400

Step-by-step explanation:

given data

issue = 10 %

face amount = $8,000,000

bonds issued price = $9,080,000

yield = 8%

bond premium = $1,080,000

to find out

unamortized bond premium

solution

first we get here interest expenses that is

interest expenses = bonds issued price × yield .............1

interest expenses = $9,080,000 × 8%

interest expenses = $726,400

and

interest paid is

interest paid = 10% of face amount .............2

interest paid = 10 % × $8,000,000

interest paid = $800000

and

premium amortized is here

premium amortized = interest paid - interest expenses ...................3

premium amortized = $800000 - $726,400

premium amortized = $73600

and

Unamortized Premium will be

Unamortized Premium = $1,080,000 - $73600

Unamortized Premium = $1,006,400

so correct option is b. $1,006,400