Question

On January 1, Year 4, Celt Corp. issued 9% bonds in the face amount of $1 million, which mature on January 1, Year 14. The bonds were issued for $939,000 to yield 10%, resulting in a bond discount of $61,000. Celt uses the interest method of amortizing bond discount. Interest is payable annually on December 31. At December 31, Year 4, Celt’s unamortized bond discount should be?

Answer 1

$5,710,000, unamortized bond discount.

Step-by-step explanation:

We will have to approximate the unamortized bond discount on December 31, Year 4

Cash interest payment = $1,000,000 * 9 percent = $90,000

Interest expense charge = $939,000 * 10 percent = $93,900

Amortized discount will be = $93,900 - $90,000 = $3,900

By the end of December 31, Year 4 Unamortized bond discount will be = ($1,000,000 - $939,000) - $3,900 = $5,710,000