Question

On January 1, 2021, Vaughn Manufacturing issued its 12% bonds in the face amount of $7990000, which mature on January 1, 2031. The bonds were issued for $8971878 to yield 10%, resulting in bond premium of $981878. Vaughn uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2021, Vaughn's adjusted unamortized bond premium should be (Round intermediate calculations to 0 decimal places, e.g. 9,020,890.)

Answer 1

Answer:

$920,266

Explanation:

The adjusted unamortized bond premium is the initial bond premium  recorded on the issuance of the bond minus the amortized bond premium for the year ended 31 December 2021.

The initial bond premium is $981,878

At year end of the first year the amortized premium is the difference between the interest expense recognized and coupon  interest  paid in cash .

Interest expense=$8971878*10%=$897,187.80  

coupon interest= $7990000*12%=$958,800.00  

Amortized bond premium= $958,800.00-$897,187.80=$ 61,612.20  

Adjusted unamortized bond premium=$981,878-$61,612.20=$920,265.80