224. On January 1, Jorge Inc. issued $3,000,000, 8% bonds for $2,817,000. The market rate of interest for these bonds is 9%. Interest is payable annually on December 31. Jorge uses the effective-interest method of amortizing bond discount. At the end of the first year, Jorge should report unamortized bond discount of:

Question

Quizplus · Accepted Answer

The unamortized bond discount is calculated by subtracting the amortized discount from the initial discount. The initial discount is $3,000,000 - $2,817,000 = $183,000. The interest expense for the first year using the effective-interest method is $2,817,000 * 9% = $253,530. The actual interest paid is $3,000,000 * 8% = $240,000. The amortized discount is $253,530 - $240,000 = $13,530. Therefore, the unamortized discount is $183,000 - $13,530 = $169,470.