Final answer:
Zimmern Foods will report only the interest expense for the bonds in its income statement for the year since the general rate of interest has not changed and they elected the fair value option upon issuance. No gain or loss would be reported under these circumstances.
Step-by-step explanation:
When Zimmern Foods elected the fair value option for its bonds, the interest payments and fair value changes due to market fluctuations should be reported in the income statement separately. Because the general rate of interest has not changed, the fair value of the bonds would likely remain the same, assuming all other market conditions are constant. Therefore, Zimmern will report interest expense related to the coupon payments but should not report any gain or loss from fair value adjustments of the bonds in its income statement since there was no change in the risk-free rate of interest.
It is important to understand that the interest expense is based on the coupon rate or stated interest rate of the bond, which remains fixed over the life of the bond. However, the fair value of the bond can fluctuate based on changes in market interest rates, perceived risk, and other factors, which can lead to recognizing gains or losses if the bonds are carried at fair value. Since the question specifies that there was no change in the general rate of interest, it implies no significant fair value adjustment occurred.