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On July 1, 2017, Casablanca Ltd.issued $6,000,000 (par value), 9%, ten-year convertible bonds at 98 plus accrued interest.The bonds were dated April 1, 2017 with interest payable quarterly on July 1, October 1, January 1 and April 1.If the bonds had NOT been convertible, they would have sold for 96.1 plus accrued interest.The bond discount is amortized on a straight-line basis.On April 1, 2018, $1,200,000 of these bonds were converted into 500 no par common shares.Accrued interest was paid in cash at the time of conversion.
-What is the amount of the unamortized bond discount on April 1, 2018 relating to the bonds that were converted?
A)$64,246
B)$46,800
C)$43,200
D)$44,400

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Quizplus · Accepted Answer

The total bond discount is $120,000 ($6,000,000 * (100% - 98%)). The discount is amortized over 10 years, so the annual amortization is $12,000. By April 1, 2018, 1 year has passed, so $12,000 has been amortized. The unamortized discount is $108,000. The converted bonds represent 20% of the total ($1,200,000 / $6,000,000), so the unamortized discount for the converted bonds is 20% of $108,000, which is $21,600.

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