Question

1-Auerbach Inc. issued 8% bonds on October 1, 2018. The bonds have a maturity date of September 30, 2028 and a face value of $375 million. The bonds pay interest each March 31 and September 30, beginning March 31, 2019. The effective interest rate established by the market was 10%.
Assuming that Auerbach issued the bonds for $328,266,900, what interest expense would it recognize in its 2018 income statement?

2-Auerbach Inc. issued 6% bonds on October 1, 2018. The bonds have a maturity date of September 30, 2028 and a face value of $500 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 $432,045,000, what would the company report for its net bond liability balance at December 31, 2018, rounded up to the nearest thousand?

3-On April 1, 2018, Austere Corporation issued $350,000 of 14% bonds at 107. Each $1,000 bond was sold with 50 detachable stock warrants, each permitting the investor to purchase one share of common stock for $18. On that date, the market value of the common stock was $15 per share and the market value of each warrant was $3. Austere should record what amount of the proceeds from the bond issue as an increase in liabilities?

Answer 1

CASE 1	Auerbach Inc issued 8% Bonds on Oct1,2018
	Bonds maturity date 30th Sept 2028
	Face Value -$ 375 Mio			37,50,00,000
	Bond Pay Interest 31st March + 30th Sept
	The effective Interest rate 10%
	Assuming that Auerbach issued Bond $ 328,266,900
					Amnt($)
	Bond issue Price $				32,82,66,900
	Add - Interest ( Effective Interest rate 10%				1,64,13,345
	applicable for 6 Months
	$32826690*10% *6/12)
	Less - Interest payment with face value				1,50,00,000
	$375000000*8% *6/12)
	Net Bond Liability after first Interest payment on 2018				32,96,80,245
	Interest payment first in 2018				1,50,00,000
	Net Bond Liability after first Interest payment on 2018				32,96,80,245

CASE 2	Auerbach Inc issued 6% Bonds on Oct1,2018
	Bonds maturity date 30th Sept 2028
	Face Value -$ 500 Mio			50,00,00,000
	Bond Pay Interest 31st March + 30th Sept
	The effective Interest rate 8%
	Assuming that Auerbach issued Bond $ 432,045,000
					Amnt($)
	Bond issue Price $				43,20,45,000
	Add - Interest ( Effective Interest rate 8%				1,72,81,800
	applicable for 6 Months
	$432045000*8% *6/12)
	Less - Interest payment with face value				1,50,00,000
	$500000000*6% *6/12)
	Net Bond Liability after first Interest payment on 2018				43,43,26,800
	Interest payment first in 2018				1,50,00,000
	Net Bond Liability after first Interest payment on 2018				43,43,26,800

CASE 3	On April 1, 2018, Austere Corporation issued $350,000 of 14% bond @ 107
	Detachable Warrant - Each $ 1000 bond was sold with 50 detachable Warrant
	Value of the Warrant $ 3/ Share
	Need to determied increase in Liability
	Value of Bond issued			Amnt($)
	$350000/100*107			3,74,500
	Less - Market value of Warrant			52500
	$350000/$1000*50*$3/ Warrant
	Increase in Liability			3,22,000