Fabulator, Inc. produces and sells fashion clothing. On July 1, 2012, Fabulator,

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%, 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. a. Journalize the entry to record the amount of cash proceeds from the sale of the bonds. b. The interest payment on June 30, 2013, and the amortization of the bond premium, using the straight-line method. (Round to the nearest dollar.) c. Determine the total interest expense for 2012. d. Compute the price of $148,882,608 received for the bonds by using the tables of present value in Appendix A. (Round to the nearest dollar.) Your total may vary slightly from the price given due to rounding differences. Present value of the face amount Present value of the semi-annual interest payments Price received for the bonds

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

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