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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Business

Madalyn Armstrong

27 March, 09:39

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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Madeleine Powers · Answer 1

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