On January 1, 2017, Kimbrough Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Kimbrough uses the effective-interest method of amortizing bond discount. At December 31, 2017, Kimbrough should report unamortized bond discount of:

$285,500

Explanation:

Since Kimbrough sold its bonds at a discount, it must amortize the discount amount to interest expense over the bonds' lifespan. In this case, the discount was $5,000,000 - $4,695,000 = $305,000.

the amortization of discount for 2017 = ($5,000,000 x 9%) - ($4,695,000 x 10%) = $450,000 - $469,500 = -$19,500

the unamortized bond discount balance = $305,000 - $19,500 = $285,500

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