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 amount of bond discount to be amortized each year using the effective-interest method is calculated as:
Carrying value of the bond at the beginning of the year x Market rate of interest
= $2,817,000 x 9%
= $253,530

The interest expense for the year would be:
Carrying value of the bond at the beginning of the year x Stated interest rate
= $2,817,000 x 8%
= $225,360

Therefore, the amount of bond discount to be amortized for the year would be:
Amortization amount = Interest expense - Bond discount
= $225,360 - $253,530
= ($28,170)

The carrying value of the bond at the end of the year would be:
Carrying value of the bond at the beginning of the year - Amortization amount
= $2,817,000 - ($28,170)
= $2,788,830

The unamortized bond discount at the end of the first year would be the difference between the bond's face value and its carrying value:
Unamortized bond discount = Face value of the bond - Carrying value of the bond
= $3,000,000 - $2,788,830
= $211,170

Therefore, the correct answer is (B) $169,470, which is the amount of bond discount that has not yet been amortized at the end of the first year.