On January 1, 2021, Solis Co. issued its 10% bonds in the face amount of $8,000,000, which mature on January 1, 2031. The bonds were issued for $9,080,000 to yield 8%, resulting in the 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, 2021, Solis's adjusted unamortized bond premium should be

1,006,400

Explanation:

To know the unamortized portion we have to solve for the amount amortizated at the first payment in December 31th, 2021.

Under the effective-rate method we will calculate the amortization as follow:

interest expense:

9,080,000 x 8% = 726,400

cash outlay:

8,000,000 x 10% = 800,000

amortization on premium:

800,000 - 726,400 = 73,600

the unamortized bond premium at year-end should be:

1,080,000 - 73,600 = 1,006,400