Question

On June 30, 2021, Moran Corporation issued $4 million of its 8% bonds for $3.5 million. The bonds were priced to yield 9.4%. The bonds are dated June 30, 2021. Interest is payable semiannually on December 31 and July 1. If the effective interest method is used, by how much should the bond discount be reduced for the six months ended December 31, 2021? a) $3,500. b) $4,500. c) $4,800. d) $9,000.

Answer 1

b) $4,500

Step-by-step explanation:

The computation of the bond discount that should be reduced is given below;

Bond discount to be reduced

= ($3,500,000 × 9.4 × 1 ÷ 2) - ($4,000,000 × 8% × 1 ÷ 2)

= $164,500 - $160,000

= $4,500

hence, the bond discount that should be reduced is $4,500

Therefore the option b is correct