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 $700 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 $604,863,000, 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.)

Multiple Choice

$594,363,000

$615,363,000

$606,460,000.

$699,000,000.

Answer 1

Answer	$606,460,000
	net bond liability balance at 31st december,2018
	beginning liability	$604,863,000
	add: interest expense (3 months) at effective rate
	(604863000*8%*3/12)	$12,092,760
	less: interest payable (3 months ) on face value at issued rate
	(700000000*6%*3/12)	-$10,500,000
		$606,460,260
	rounded off to nearest thousand	$606,460,000