Question

Auerbach Inc. issued 6% bonds on October 1, 2018. The bonds have a maturity date of September 30, 2028 and a face value of $360 million. The bonds pay interest each March 31 and September 30, beginning March 31, 2019. The effective interest rate established by the market was 8%. Assuming that Auerbach issued the bonds for $306,442,000, what would the company report for its net bond liability balance after its first interest payment on March 31, 2019, rounded up to the nearest thousand? $307,899,680. $306,442,000. $304,984,320. $309,357,360.

Answer 1

Interest Paid on March 31, 2019 = $360,000,000 x 6% x 6/12 = $10,800,000
Interest Expense for March 31, 2019 = $306,442,000 x 8% x 6/12 = $12,257,680
Amortization of Discount = $12,257,680 - $10,800,000 = $1,457,680

Net Bond Liability balance after its first interest payment on March 31, 2019 = $306,442,000 + $1,457,680 = $307,899,680

Answer is a. $307,899,680