Auerbach Inc. issued 6% bonds on October 1, 2016. The bonds have a maturity date

Question

Auerbach Inc. issued 6% bonds on October 1, 2016. The bonds have a maturity date of September 30, 2026 and a face value of $300 million. The bonds pay interest each March 31 and September 30, beginning March 31, 2017. The effective interest rate established by the market was 8%. Assuming that Auerbach issued the bonds for $259,229,970, what interest expense would it recognize in its 2016 income statement? (Do not round intermediate calculations and round final answer to nearest whole dollar.)

A. $10,369,199

B. $6,000,000

C. $0

D. $5,184,599

Explanation / Answer

Interest expense for 6months = 4 %

Interest rate for 6months = ($259,229,970 * 4) / 100

= $ 10,369,199

Ao that answer is A i.e $ 10,369,199

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