On January 1, 2024, Rapid Airlines issued $205 million of its 6% bonds for $188 million.The bonds were priced to yield 8%.Interest is payable semiannually on June 30 and December 31.Rapid Airlines records interest at the effective rate and elected the option to report these bonds at their fair value.On December 31, 2024, the fair value of the bonds was $194 million as determined by their market value in the over-the-counter market.Rapid determined that $1,000,000 of the increase in fair value was due to a decline in general interest rates. Record entry to adjust the bonds to their fair value for presentation in the December 31, 2024, balance sheet. 3December 31, 202 Loss on bonds payable (unrealized, NI)Loss on bonds payable (unrealized, OCI)Fair value adjustment1,000,000

Bonds are high-security debt instruments that give an organization the ability to acquire money and…

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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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On January 1, 2024, Rapid Airlines issued $205 million of its 6% bonds for $188 million.

The bonds were priced to yield 8%.
Interest is payable semiannually on June 30 and December 31.
Rapid Airlines records interest at the effective rate and elected the option to report these bonds at their fair value.
On December 31, 2024, the fair value of the bonds was $194 million as determined by their market value in the over-the-counter market.
Rapid determined that $1,000,000 of the increase in fair value was due to a decline in general interest rates.

Record entry to adjust the bonds to their fair value for presentation in the December 31, 2024, balance sheet.

3
December 31, 202 Loss on bonds payable (unrealized, NI)
Loss on bonds payable (unrealized, OCI)
Fair value adjustment
1,000,000

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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