On January 1, Patterson Inc. issued $4,000,000, 9% bonds for $3,756,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effective-interest method of amortizing bond discount. At the end of the first year, Patterson should report unamortized bond discount of

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The annual interest payment on the bonds would be $360,000 ($4,000,000 x 9%). Using the effective-interest method, the bond discount is amortized each year based on the market interest rate at the time of issuance. 
In this case, since the market rate is higher than the coupon rate, the bond was issued at a discount. 
The bond discount would be $244,000 ($4,000,000 - $3,756,000). 
To calculate the bond discount amortization for the first year, we use the following formula: Bond Discount Amortization = Bond Discount x Market Interest Rate. 
Bond Discount Amortization = $244,000 x 10% = $24,400. 
Therefore, unamortized bond discount at the end of the first year would be $228,400 ($244,000 - $24,400).