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 would the company report for its net bond liability balance at December 31, 2018, rounded up to the nearest thousand?

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 would the company report for its net bond liability balance at December 31, 2018, rounded up to the nearest thousand?

Quizplus · Accepted Answer

This is the beginning liability of $255,369,000 + Interest accrued for three months (1.5% of issue price) - Interest payable of $3,000,000 ($300,000,000 × 4% × 3/12).