Problem 1 X Search Te × Search Te × C ezto.mheducation.com/hm.tpx connect. ACCOU

Question

Problem 1 X Search Te × Search Te × C ezto.mheducation.com/hm.tpx connect. ACCOUNTING ACC Exam (ACC 3021) Question 15(of 30) Auerbach Inc. issued 4% bonds on October 1, 2016 The bonds have a maturity date of September 30, 2026 and a face value of $490 million. The bonds pay interest each March 31 and September 30, beginning March 31, 2017 The effective interest rate established by the market was 6%. Assuming that Auerbach issued the bonds for $356,815,000, what would the company report for its net bond liability balance after its first interest payment on March 31, 2017? O $357719.450 $358,623,900. O $355.910.550 O $356,815000.

Explanation / Answer

Discount on issue=490000000-356815000=133185000 Interest payment=490000000*4%*1/2=9800000 Interest expense=356815000*6%*1/2=10704450 Amortization of discount=10704450-9800000=904450 Net bond liability=356815000+904450=357719450 Answer is first option 357719450. Amortization table: A B C D E F G Date Interest payment Interest expense Amortization of discount Balance in bond Discount Balance in bond payable Book value of bonds (Fce value * 4%*1/2) (previous value in G*6%*1/2) [C-B] (previous value in E-D) [F-E] 1/10/2016 133185000 490000000 356815000 31/03/2017 9800000 10704450 904450 132280550 490000000 357719450

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