Federal Semiconductors issued 8% bonds, dated January 1, with a face amount of $750 million on January 1, 2016. The bonds sold for $680,994,058 and mature on December 31, 2032 (20 years). For bonds of similar risk and maturity the market yield was 9%. Interest is paid semiannually on June 30 and December 31. Federal determines interest at the effective rate. Federal elected the option to report these bonds at their fair value. On December 31, 2016, the fair value of the bonds was $670 million as determined by their market value in the over-the-counter market. Assume the fair value of the bonds on December 31, 2017 had risen to $676 million. Required: Complete the below table to record the following journal entries. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2016 and on December 31, 2017, balance sheet.
Federal Semiconductors issued 8% bonds, dated January 1, with a face amount of $750 million on January 1, 2016. The bonds sold for $680,994,058 and mature on December 31, 2032 (20 years). For bonds of similar risk and maturity the market yield was 9%. Interest is paid semiannually on June 30 and December 31. Federal determines interest at the effective rate. Federal elected the option to report these bonds at their fair value. On December 31, 2016, the fair value of the bonds was $670 million as determined by their market value in the over-the-counter market. Assume the fair value of the bonds on December 31, 2017 had risen to $676 million. Required: Complete the below table to record the following journal entries. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2016 and on December 31, 2017, balance sheet.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
N4.
Account
Transcribed Image Text:Federal Semiconductors issued 8% bonds, dated January 1, with a face amount of $750 million on January 1, 2016.
The bonds sold for $680,994,058 and mature on December 31, 2032 (20 years). For bonds of similar risk and maturity
the market yield was 9%. Interest is paid semiannually on June 30 and December 31. Federal determines interest at
the effective rate. Federal elected the option to report these bonds at their fair value. On December 31, 2016, the fair
value of the bonds was $670 million as determined by their market value in the over-the-counter market. Assume the
fair value of the bonds on December 31, 2017 had risen to $676 million.
Required:
Complete the below table to record the following journal entries. Prepare the journal entry to adjust the bonds to
their fair value for presentation in the December 31, 2016 and on December 31, 2017, balance sheet.
Semiannual
Interest
Period-End Paid
1/1/2018
6/30/2018
12/31/2018
6/30/2019
12/31/2019
1/1/2018
6/30/2018
12/31/2018
6/30/2019
Cash
Bond
Interest Interest
Paid
12/31/2019
Bonds
Payable
680994058
680994058
Increase in
Balance
Fair Value
Adjustment
1/1/2018
6/30/2018
12/31/2018
6/30/2019
12/31/2019
Carrying
Value
680,994,058
0
Fair Value
670,000,000
676,000,000
0
Unrealized
Holding
gain
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