Question: 1. Auerbach Inc. issued 4% bonds on October 1, 2016. The bonds have a maturity date of September 30, 2026 and a face value of $430 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 $371,562,000, what would the company report for its net bond liability balance after its first interest payment on March 31, 2017?
2. On June 30, 2016, Hardy Corporation issued $9.5 million of its 12% bonds for $8.7 million. The bonds were priced to yield 14%. The bonds are dated June 30, 2016, and mature on June 30, 2026. Interest is payable semiannually on December 31 and July 1. If the effective interest method is used, by how much should the bond discount be reduced for the six months ended December 31, 2016?
3. On January 1, 2016, Zebra Corporation issued 1,600 of its 7%, $1,000 bonds at 97.7. Interest is payable semiannually on January 1 and July 1. The bonds mature on January 1, 2026. Zebra paid $57,000 in bond issue costs. Zebra uses the straight-line amortization method. What is the bond book value reported in the December 31, 2016, balance sheet?
4. Cramer Company sold five-year, 9% bonds on October 1, 2016. The face amount of the bonds was $170,000, while the issue price was $178,000. Interest is payable on April 1 of each year. The fiscal year of Cramer Company ends on December 31. How much interest expense will Cramer Company report in its December 31, 2016, income statement (assume straight-line amortization)?
5. On April 1, 2016, Austere Corporation issued $330,000 of 11% bonds at 108. Each $1,000 bond was sold with 40 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?