Question

In: Accounting

On January 1, 2024, Fabrikam Labs issued 1,000 bonds, each with a face value of $1,000,...

On January 1, 2024, Fabrikam Labs issued 1,000 bonds, each with a face value of $1,000, for 102.7323. The stated interest is 3.8%, and the market rate at the time the bonds were issued was 3.2%. The bonds are due on January 1, 2029 (5 year term) with interest payments due annually every January 1st. The company received cash from the sale of the bonds. Using the effective-interest method calculate and record the December 31, 2025 journal entry for the bond interest expense including premium/discount amortization, and the payable.

Solutions

Expert Solution

Date Account Title and Explanation Debit Credit
December 31.2025 Bond interest expense $ 32,710.31
Premium on bonds payable $    5,289.69
Interest payable $ 38,000.00
(Interest on bond paid and Discount amortized)

Alternate solution with zero decimal place in answers

(Issue of bonds )
Date Account Title and Explanation Debit Credit
December 31. 2025 Bond interest expense $        32,710
Premium on bonds payable $          5,290
Interest payable $       38,000
(Interest on bond paid and Discount amortized)

Working

Amortization table  
Period Cash payment Interest expense Premium on Bonds payable Carrying Value of Bond
Issued $     (27,323.00) $ 10,27,323.00
Year 2024 $ 38,000.00 $ 32,874.34 $       (5,125.66) $ 10,22,197.34
year 2025 $ 38,000.00 $ 32,710.31 $       (5,289.69) $ 10,16,907.65

ekkarill92 answered 2 years ago
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