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Teal Company commonly issues long-term notes payable to its various lenders. Teal has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Teal has elected to use the fair value option for the long-term notes issued to Barclay's Bank and has the following data related to the carrying and fair value for these notes. Any changes in fair value are due to changes in market rates, not credit risk. December 31, 2025 December 31, 2026 Carrying Value (before fair vakure adjustment) $55,500 47,000 Fair Value $55,500 45,600

Teal Company commonly issues long-term notes payable to its various lenders. Teal has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Teal has elected to use the fair value option for the long-term notes issued to Barclay's Bank and has the following data related to the carrying and fair value for these notes. Any changes in fair value are due to changes in market rates, not credit risk. December 31, 2025 December 31, 2026 Carrying Value (before fair vakure adjustment) $55,500 47,000 Fair Value $55,500 45,600

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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Teal Company commonly issues long-term notes payable to its various lenders. Teal has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Teal has elected to use the fair value option for the long-term notes issued to Barclay's Bank and has the following data related to the carrying and fair value for these notes. Any changes in fair value are due to changes in market rates, not credit risk. December 31, 2025 December 31, 2026 December 31, 2027 Date Dec. 31, 2025 Dec. 31, 2026 Carrying Value (before fair value adjustment) Dec. 31, 2027 $55,500 47,000 34,600 a. Prepare the journal entry at December 31 (Teal's year-end) for 2025, 2026, and 2027, to record the fair value option for these notes. (Record journal entries in the order presented in the problem. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries.) Fair Value Notes Payable $55,500 45,600 Account Titles and Explanation Notes Payable 36,400 Unrealized Holding Gain or Loss-Income Notes Payable Unrealized Holding Gain or Loss-Income Unrealized Holding Gain or Loss-Income b. At what amount will the note be reported on Teal's 2026 balance sheet? Note to be reported on Teal's 2026 balance sheet $ Debit The effect of recording the fair value option would result in unrealized holding loss OOCO c. What is the effect of recording the fair value option on these notes on Teal's 2027 net income? of $ Credit I
Transcribed Image Text:Teal Company commonly issues long-term notes payable to its various lenders. Teal has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Teal has elected to use the fair value option for the long-term notes issued to Barclay's Bank and has the following data related to the carrying and fair value for these notes. Any changes in fair value are due to changes in market rates, not credit risk. December 31, 2025 December 31, 2026 December 31, 2027 Date Dec. 31, 2025 Dec. 31, 2026 Carrying Value (before fair value adjustment) Dec. 31, 2027 $55,500 47,000 34,600 a. Prepare the journal entry at December 31 (Teal's year-end) for 2025, 2026, and 2027, to record the fair value option for these notes. (Record journal entries in the order presented in the problem. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries.) Fair Value Notes Payable $55,500 45,600 Account Titles and Explanation Notes Payable 36,400 Unrealized Holding Gain or Loss-Income Notes Payable Unrealized Holding Gain or Loss-Income Unrealized Holding Gain or Loss-Income b. At what amount will the note be reported on Teal's 2026 balance sheet? Note to be reported on Teal's 2026 balance sheet $ Debit The effect of recording the fair value option would result in unrealized holding loss OOCO c. What is the effect of recording the fair value option on these notes on Teal's 2027 net income? of $ Credit I
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