Michek Company loans Sarasota Company $2,000,000 at 6% for 3 years on January 1, 2020. Michek intends to hold this loan to maturity and has the financial ability to do so. The fair value of the loan at the end of each reporting period is as follows.December 31, 2020 $2,050,000December 31, 2021 2,020,000December 31, 2022 2,000,000Prepare the journal entry(ies) at December 31, 2020, and December 31, 2022, for Michek related to these bonds, assuming (a) it does not use the fair value option, and (b) it uses the fair value option. Interest is paid on January 1.

Bonds: Bonds are long-term promissory notes that are issued by a company while borrowing money from…

Answered: Michek Company loans Sarasota Company…

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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Michek Company loans Sarasota Company $2,000,000 at 6% for 3 years on January 1, 2020. Michek intends to hold this loan to maturity and has the financial ability to do so. The fair value of the loan at the end of each reporting period is as follows.

December 31, 2020		$2,050,000
December 31, 2021		2,020,000
December 31, 2022		2,000,000

Prepare the journal entry(ies) at December 31, 2020, and December 31, 2022, for Michek related to these bonds, assuming (a) it does not use the fair value option, and (b) it uses the fair value option. Interest is paid on January 1.

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