Question

g On July 1, 2019, Sheffield Corp. issued 9% bonds in the face amount of $12400000, which mature on July 1, 2025. The bonds were issued for $11859948 to yield 10%, resulting in a bond discount of $540052. Sheffield uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2021, Sheffield's unamortized bond discount should be

Answer 1

$393,063

Step-by-step explanation:

The bond is issued on discount when the issuance price is less than the face value of the bond. The discount is expensed over the bond period until maturity. It is added to the interest expense value to expense it.

Unamortized Discount is the discount balance which has not been expensed or discount balance for outstanding period of the bond to maturity.

Discount Balance = $540,052

Date Interest Paid Interest Expense Amortization Book Value

7/1/19 11,859,948

6/30/20 1,116,000 1,185,995 69,995 11,929,943

6/30/21 1,116,000 1,192,994 76,994 12,006,937

Unamortized Discount = Total Discount - Discount amortized

Unamortized Discount = $540,052 - ($69,995 + $76,994)

Unamortized Discount = $393,063