Question

On January 1, 2018, Coronado Industries issued its 11% bonds in the face amount of $7960000, which mature on January 1, 2028. The bonds were issued for $9150000 to yield 9%, resulting in bond premium of $1190000. Coronado uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2018, Coronado's adjusted unamortized bond premium should be

Answer 1

Answer:

Adjusted unamortized bond premium of $1,137,900.

Explanation:

To amortize the bond premium, use the nominal rate and the effective interest rate. The face value is 7,960,000. Multiply it by 9 % of which the answer is 875,600.

Then multiply the 11% effective interest rate by the carrying amount of the bonds amounting to 9,150,000. The answer is 823,500.

After that, get the difference between 875,600 and 823,500. The result is 52,100.

Since we have a bond premium of 1,190,000, deduct the 52,100 from it. Finally, the adjusted amount of the unamortized bond premium for the year 2018 is 1,137,900.