On January 1, Evangel Company issued 9% bonds in the face amount of $100,000, which
mature in 5 years. The bonds were issued for $96,207 to yield 10%, resulting in a bond discount of $3,793.
Evangel uses the effective interest method of amortizing bond discount. Interest is payable annually on
December 31.

What is the amount of Evangel’s unamortized bond discount at the end of the first year?

Answer (C) is correct. Total interest expense for the year equals the carrying amount of the bonds times the effective rate (yield), or $9,621 ($96,207 × 10%). Subtracting the cash interest payment from this leaves the amount of discount amortized, or $621 ($9,621 – $9,000). Subtracting this amount from the previous unamortized discount ($3,793) leaves a remaining unamortized discount at the end of Year 1 of $3,172.