Question

Auerbach Inc. issued 4% bonds on October 1, 2021. The bonds have a maturity date of September 30, 2031 and a face value of $300 million. The bonds pay interest each March 31 and September 30, beginning March 31, 2022. The effective interest rate established by the market was 6%.

Assuming that Auerbach issued the bonds for $255,366,000, what would the company report for its net bond liability balance at December 31, 2021, rounded up to the nearest thousand? (Do not round intermediate calculations.)

Multiple Choice

• $252,366,000.

• $256,196,000.

• $258,366,000.

• $299,000,000.

Answer 1

Correct answer--------$256,196,000

Working

Year end	Cash interest payable for 3 month	Interest expense accrued for 3 months	Change in carrying value	Carrying value
Oct 1 2021				$        255,366,000
Dec 31 2021	$        3,000,000*	$         3,830,490**	$         830,490***	$        256,196,490

*(300,000,000 x 4%)/12 x 3

**(255366000 x 6%)/12 x 3

***Difference in cash interest and interest expense.

The answer is rounded to thousand so $490 in last 3 figures are removed and 256196490 becomes 256196000