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milar risk and maturity the market yield was 9 semiannually on June 30 and December 31. ines interest at the effective rate. the option to report these bonds at their fair 31 2034

milar risk and maturity the market yield was 9 semiannually on June 30 and December 31. ines interest at the effective rate. the option to report these bonds at their fair 31 2034

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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Exercise 14-29 (Algo) Reporting bonds at fair value [LO14-6) Federal Semiconductors issued 8% bonds, dated January 1, with a face amount of $750 million on January 1, 2024. • The bonds sold for $680,994,058 and mature on December 31, 2043 (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, 2024, 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, 2025, had risen to $676 million. Required: Complete the below table to record the following journal entries. 1. & 2. Prepare the journal entries to record interest on June 30, 2024, December 31, 2024, and adjust the bonds to their fair value for presentation in the December 31, 2024 balance sheet, and record interest on June 30, 2025, December 31, 2025, and adjust the bonds to their fair value for presentation in the December 31, 2025, balance sheet. Federal determined that none of the change in fair value in 2024 was due to a decline in general interest rates and one-half of the increase in fair value in 2025 was due to a decline in general interest rates.
Transcribed Image Text:Exercise 14-29 (Algo) Reporting bonds at fair value [LO14-6) Federal Semiconductors issued 8% bonds, dated January 1, with a face amount of $750 million on January 1, 2024. • The bonds sold for $680,994,058 and mature on December 31, 2043 (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, 2024, 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, 2025, had risen to $676 million. Required: Complete the below table to record the following journal entries. 1. & 2. Prepare the journal entries to record interest on June 30, 2024, December 31, 2024, and adjust the bonds to their fair value for presentation in the December 31, 2024 balance sheet, and record interest on June 30, 2025, December 31, 2025, and adjust the bonds to their fair value for presentation in the December 31, 2025, balance sheet. Federal determined that none of the change in fair value in 2024 was due to a decline in general interest rates and one-half of the increase in fair value in 2025 was due to a decline in general interest rates.
2 3 4 5 6 December 31, 202 Interest expense Discount on bonds payable Cash December 31, 202 Fair value adjustment June 30, 2025 Gain on bonds payable (unrealized, OCI) Interest expense Discount on bonds payable Cash December 31, 202 Interest expense Discount on bonds payable Cash December 31, 202 Loss on bonds payable (unrealized, NI) Loss on bonds payable (unrealized, OCI) Fair value adjustment < Calculation 000 ›› 000 000 *** 30,673,746 12,312,536 30,704,064 30,735,747 3,000,000 1,560,189 c 673,746 30,000,000 12,312,536 704,064 30,000,000 735,747 30,000,000 4,560,189
Transcribed Image Text:2 3 4 5 6 December 31, 202 Interest expense Discount on bonds payable Cash December 31, 202 Fair value adjustment June 30, 2025 Gain on bonds payable (unrealized, OCI) Interest expense Discount on bonds payable Cash December 31, 202 Interest expense Discount on bonds payable Cash December 31, 202 Loss on bonds payable (unrealized, NI) Loss on bonds payable (unrealized, OCI) Fair value adjustment < Calculation 000 ›› 000 000 *** 30,673,746 12,312,536 30,704,064 30,735,747 3,000,000 1,560,189 c 673,746 30,000,000 12,312,536 704,064 30,000,000 735,747 30,000,000 4,560,189
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