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On January 1, Greene Inc. issued $5,000,000, 9% bonds for $4,685,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Greene uses the effective-interest method of amortizing bond discount. At the end of the first year, Greene should report unamortized bond discount of:_____.
a. $274,500.b. $285,500.c. $258,050.d. $255,000.

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abiolataiwo2015

Answer:

b.$296,500.

Explanation:

Calculation to determine what Greene should report as unamortized bond discount

First step is to calculate the discount amount

Discount Amount= ($5,000,000 × .09) - ($4,685,000 × .10)

Discount Amount= $18,500

Now let determine the unamortized bond discount

Unamortized bond discount=$315,000 - $18,500 Unamortized bond discount= $296,500

Therefore Greene should report unamortized bond discount of $296,500

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