Auerbach Inc. issued 4% bonds on October 1,2021. The bonds have a maturity date of September 30, 2021 and a face value of $200 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 $170,244,000 what would the company report for its net bond liability balance at December 31,2021, rounded up to the nearest thousand?
a)$ 168,244,000
b)$ 172,244,000
c)$ 199,000,000
d)$ 170,798,000
Correct answer--------------d)$ 170,798,000
Working
Amortization table | |||||
Period | Cash payment due | Interest expense | Discount on Bonds payable | Carrying Value of Bond | |
Issued | $ 29,756,000 | $ 170,244,000 | |||
2021 | Dec 31 | $ 2,000,000* | $ 2,553,660* | $ 553,660 | $ 170,797,660 |
Interest expense and cash due are both recorded for 3 months.
Interest expense = 170244000 x 6% x ( 3/12)
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