Auerbach Inc. issued 10% bonds on October 1, 2018. The bonds have a maturity dat

Question

Auerbach Inc. issued 10% bonds on October 1, 2018. The bonds have a maturity date of September 30, 2028 and a face value of $300 million. The bonds pay interest each March 31 and September 30, beginning March 31, 2019. The effective interest rate established by the market was 12%. Assuming that Auerbach issued the bonds for $265,590,000, what would the company report for its net bond liability balance at December 31, 2018, rounded up to the nearest thousand? (Do not round intermediate calculations.)

Explanation / Answer

Par value of Bonds $300,000,000 Bond Issue Price $265,590,000 Discount on Issue of Bonds $34,410,000 so at year end interest expense would be recorded Dr Cr Interest expenses (265590000*12%*3/12) 7967700 Discount on Bonds Payable (bal fig) 467700 Interest payable (300000000*10%*3/12) 7500000 Net Bond Liability Bonds Payable $300,000,000 Less: Discount on Bonds Payable $33,942,300 (34410000-467700) Net Bond Liability at December 31 2018 $266,057,700 If any doubt please comment

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