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December 31, and the company uses the effective interest method to amortize bond discounts or premiums. On January 1 of Year 1, Mitchell Inc. elects to account for the bonds using the fair value option. a. Record the issuance of bonds on January 1 of Year 1. b. Record the interest payment on June 30 of Year 1. c. Record the interest payment on December 31 of Year 1. d. At December 31 of Year 1, the market rate on the bonds drops to 7.5% due to a general increase in market risk. Record the adjustment of bonds payable to fair value. Note: Round your answers to the nearest whole dollar. Date a. Jan. 1, Year 1 b. June 30, Year 1 c. Dec. 31, Year 1 d. Dec. 31, Year 1 Account Name To record the issuance of bonds. To record the payment of interest. To record the payment of interest. To record the adjustment of bonds payable. Dr. Cr.

December 31, and the company uses the effective interest method to amortize bond discounts or premiums. On January 1 of Year 1, Mitchell Inc. elects to account for the bonds using the fair value option. a. Record the issuance of bonds on January 1 of Year 1. b. Record the interest payment on June 30 of Year 1. c. Record the interest payment on December 31 of Year 1. d. At December 31 of Year 1, the market rate on the bonds drops to 7.5% due to a general increase in market risk. Record the adjustment of bonds payable to fair value. Note: Round your answers to the nearest whole dollar. Date a. Jan. 1, Year 1 b. June 30, Year 1 c. Dec. 31, Year 1 d. Dec. 31, Year 1 Account Name To record the issuance of bonds. To record the payment of interest. To record the payment of interest. To record the adjustment of bonds payable. Dr. Cr.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Reporting Bonds Using the Fair Value Option Mitchell Inc. issued 56 of its 6%, $1,000 bonds on January 1 of Year 1 for $54,508. The bonds pay cash interest semiannually each June 30 and December 31 and were issued to yield 7%. The bonds mature in three years on December 31, and the company uses the effective interest method to amortize bond discounts or premiums. On January 1 of Year 1, Mitchell Inc. elects to account for the bonds using the fair value option. a. Record the issuance of bonds on January 1 of Year 1. b. Record the interest payment on June 30 of Year 1. c. Record the interest payment on December 31 of Year 1. d. At December 31 of Year 1, the market rate on the bonds drops to 7.5% due to a general increase in market risk. Record the adjustment of bonds payable to fair value. • Note: Round your answers to the nearest whole dollar. Date a. Jan. 1, Year 1 b. June 30, Year 1 c. Dec. 31, Year 1 d. Dec. 31, Year 1 Account Name To record the issuance of bonds. To record the payment of interest. To record the payment of interest. To record the adjustment of bonds payable. V Dr. Cr.
Transcribed Image Text:Reporting Bonds Using the Fair Value Option Mitchell Inc. issued 56 of its 6%, $1,000 bonds on January 1 of Year 1 for $54,508. The bonds pay cash interest semiannually each June 30 and December 31 and were issued to yield 7%. The bonds mature in three years on December 31, and the company uses the effective interest method to amortize bond discounts or premiums. On January 1 of Year 1, Mitchell Inc. elects to account for the bonds using the fair value option. a. Record the issuance of bonds on January 1 of Year 1. b. Record the interest payment on June 30 of Year 1. c. Record the interest payment on December 31 of Year 1. d. At December 31 of Year 1, the market rate on the bonds drops to 7.5% due to a general increase in market risk. Record the adjustment of bonds payable to fair value. • Note: Round your answers to the nearest whole dollar. Date a. Jan. 1, Year 1 b. June 30, Year 1 c. Dec. 31, Year 1 d. Dec. 31, Year 1 Account Name To record the issuance of bonds. To record the payment of interest. To record the payment of interest. To record the adjustment of bonds payable. V Dr. Cr.
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