Question

Auerbach Inc. issued 4% bonds on October 1, 2021. The bonds have a maturity date of September 30, 2031 and a face value of $425 million. The bonds pay interest each March 31 and September 30, beginning March 31, 2022. The effective interest rate established by the market was 6%. Assuming that Auerbach issued the bonds for $361,772,495, what interest expense would it recognize in its 2021 income statement

Answer 1

Answer:

The answer is "$360595900$".

Explanation:

Interest expense for 3 months till December 31, 2021 $= \ 361,772,495 \times 6\% \times \frac{3}{12}= 5,426,587.43$

Less: Interest payable for 3 months till December 31, 2021

$=\ 425000000\times 4\% \times \frac{3}{12}= 4,250,000$

Discount amortized till December 31, 2021: $1176587.43$

The issue price for Bonds $\ 361,772,495$  

Add: Discount amortized till December 31, 2021 $1176587.43$

Net bond liability balance at December 31, 2021 $360595907.57$

360595900 (rounded off)