Auerbach Inc. issued 4% 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 6%.
-Assuming that Auerbach issued the bonds for $255,369,000, what interest expense would it recognize in its 2018 income statement?

Question

Auerbach Inc. issued 4% 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 6%. 
-Assuming that Auerbach issued the bonds for $255,369,000, what interest expense would it recognize in its 2018 income statement?

Quizplus · Accepted Answer

This is the issue price of $255,369,000 × 6% effective rate × 3 mos. / 12 mos.