What is the balance of the the bond discount (the unamortized discount) at the end of 2008?
On January 1, 2008, Bosque Company issued $1,000,000 9% bonds for $939,000. The market rate of interest at the time of the bond issue was 10%. Interest is payable annually oh December 31. Bosque uses the effective interest method of amortizing the bond discount. What is the balance of the the bond discount (the unamortized discount) at the end of 2008, after the first interest payment has been made?
2008 , Balance , bond , Discount , unamortized 
January 12th, 2011
Don G
January 12th, 2011
Start by calculating interest expense for the period, at 10% of 939,000, or 93,900. Interest paid will be 90,000 every year. So Debit Int Expense 93,900, Credit Cash 90,000 and Credit Bond Discount for the difference – 3,900. Balance in Bond Discount will be 57,100. (Balance on Jan 1, 2008 of 61,000 less 3,900).
Each year, accrue interest expense at 10% of Net Bonds Payable, i.e. Bonds Payable less balance in Bond Discount.