Fabulator Inc. produces and sells fashion clothing. On July 1,2012 Fabulator Inc
ID: 2388079 • Letter: F
Question
Fabulator Inc. produces and sells fashion clothing. On July 1,2012 Fabulator Inc, issued $120,000,000 of 20 year, 14% bonds at a market (effective) interest rate of 11%, receivinf cash of $148,882,608. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.Instructions
1. Journalize the entry to record the amount of cash proceeds from the sale of the bonds.
2. Journalize the entries to record the following:
a. the first semiannual interest payment on Dec 31, 2012 and the amortization of the bond premium, using the straight line method. (round to the nearest dollar)
b. The interest payment on Jun 30, 2013, and the amortization of the bond premium, using the straight line method. (round to the nearest dollar)
3. Determine the total interest expense for 2012
4
Explanation / Answer
Cash Payment - Premium Amortization = Interest Expense (120,000,000 x 14%) / 2 = 8,400,000 cash payment 8,400,000 - 722,065 = 7,677,935 Interest Expense Dr Interest Expense 7,677,935 Dr Premium on Bonds Payable 722,065 Cr Cash 8,400,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.