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7 December, 18:09

On July 1, 2016, Sheffield Corp. issued 9% bonds in the face amount of $11100000, which mature on July 1, 2022, The bonds were issued for $9720000 to yield 10%, resulting in a bond discount of $1380000. Sheffield uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30 2018, Sheffleld's unamortized bond dlscount should be a. $1436700 b. $1466300 c. $1454300 d. $1424300

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  1. 7 December, 18:32
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    Discount bonds are issued on discounted price of their face value

    Here discount = 11100000-9720000

    = 1380000

    on 1/07/2016

    cash outflow or book value of bond

    = 9720000

    on 30/06/2017

    interest paid = 999000

    yield expected = 972000 (10% of issue price)

    interest amortized

    = 999000-972000 = 27000

    book value = 9720000 + 27000

    = 9747000

    on 30/06/2018

    interest paid = 999000

    yield expected = 974700 (10% of book value)

    interest amortized

    = 999000-974700 = 24300

    value amortized = 24300 + 27000 = 51300

    book value = 9747000 + 24300

    = 9771300

    Amount unamortized

    1380000 - (51300)

    = 1328700
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