Question

On January 1, Oriole Company issued $5300000, 9% bonds for $4995000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Oriole uses the effective-interest method of amortizing bond discount. At the end of the first year, Oriole should report unamortized bond discount of

$282500.

$255050.

$252000.

$271500.

Answer 1

Correct answer-----------$282,500

Working

Amortization table
	Period	Cash payment	Interest expense	Discount on Bonds payable	Carrying Value of Bond	Unamortized bond premium
January 1	Issued			$ 305,000	$ 4,995,000	-$ 305,000
First year end	June	$ 477,000*	$ 499,500**	$ 22,500	$ 5,017,500	-$ 282,500

*Interest in cash = 5300000 x 9%

**Interest expense = 4995000 x 10%

Discount amortized in difference between cash interest paid and interest expense