question archive Fabulator, Inc
Fabulator, Inc
Subject:FinancePrice:2.89 Bought3
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%, receiving 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 December 31, 2012, and the amortization of the bond discount, using the interest method. (Round to the nearest dollar.)
b. The interest payment on June 30, 2013, and the amortization of the bond discount, using the interest method. (Round to the nearest dollar.)
3. Determine the total interest expense for 2012.
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1. 2012
July 1 Cash........................................................................ 148,882,608
Premium on Bonds Payable.............................. 28,882,608
Bonds Payable.................................................. 120,000,000
2.
a. 2012
Dec. 31 Interest Expense..................................................... 8,188,543*
Premium on Bonds Payable.................................... 211,457
Cash.................................................................. 8,400,000
*$148,882,608 × 5.5%
b. 2013
June 30 Interest Expense..................................................... 8,176,913*
Premium on Bonds Payable.................................... 223,087
Cash.................................................................. 8,400,000
*($148,882,608 - $211,457) × 5.5%
3. $8,188,543
