Question

Auerbach incorporated issued 4% bonds on october 1, 2024. the bonds have a maturity date of september 30, 2034 and a face value of $310 million. the bonds pay interest each march 31 and september 30, beginning march 31, 2025. the effective interest rate established by the market was 6%. assuming that auerbach issued the bonds for $263,881,000, what would the company report for its net bond liability balance after its first interest payment on march 31, 2025?

Answer 1

To calculate the net bond liability balance, subtract the interest expense from the liability balance after the first interest payment on March 31, 2025.

Step-by-step explanation:

To calculate the net bond liability balance for Auerbach Incorporated after its first interest payment on March 31, 2025, you need to consider the bond's carrying value and the interest expense incurred. Here are the steps:

1. Calculate the carrying value of the bonds after the interest payment by subtracting the amount of interest expense from the liability balance.
2. Calculate the interest expense for the first interest payment by multiplying the carrying value of the bonds on the issuance date by the effective interest rate.
3. Subtract the interest expense from the liability balance to determine the net bond liability balance after the payment.

Using the given information in the question, you can plug in the numbers and perform the calculations to find the net bond liability balance.