Question

Auerbach Inc. issued 8% bonds on October 1, 2021. The bonds have a maturity date of September 30, 2031 and a face value of $375 million. The bonds pay interest each March 31 and September 30, beginning March 31, 2022. 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 2021 income statement

Answer 1

$8,206,673

Step-by-step explanation:

The computation of the interest expense that should be recognized in the income statement is shown below:

= Bond issue value × effective rate of interest × given months ÷ number of months

= $328,266,900 × 0.10 × 3 months ÷ 12 months

= $8,206,673