Auerbach inc. issued 4% bonds on october 1, 2018. the bonds have a maturity date of september 30, 2028 and a face value of $325 million. the bonds pay interest each march 31 and september 30, beginning march 31, 2019. the effective interest rate established by the market was 6%. assuming that auerbach issued the bonds for $276,649,555, what interest expense would it recognize in its 2018 income statement? (do not round intermediate calculations and round final answer to nearest whole dollar.)

Interest expense = $1,383,248

Explanation:

Given :

Issue price of the bond = $276,649,555

Coupon rate = 4%

Effective interest rate  =  6%

Semi annual effective interest rate = = 2%

Time period will be 3 months (October 1, 2018 - December 31, 2018)

We will compute the interest expense that will be recognized in 2018 income statement as :

Interest expense = Issue price Semi annual effective interest rate  Time period

Interest expense = $276,649,555 2%

Interest expense = $1,383,248

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