FAIR VALUE OPTION PRACTICE PROBLEMS - Fair Value Option practice problems

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E 1427: Federal Semiconductors issued 11% bonds, dated January 1, with a face amount of $800 millionon January 1, 2013. The bonds sold for $739,814,813 and mature on December 31, 2032 (20 years). Forbonds of similar risk and maturity the market yield was 12%. Interest is paid semiannually on June 30and December 31. Federal determines interest at the effective rate. Federal elected the option to reportthese bonds at their fair value. On December 31, 2013, the fair value of the bonds was $730 million asdetermined by their market value in the overthecounter market.Required:1.Prepare the journal entry to adjust the bonds to their fair value for presentation in theDecember 31, 2013, balance sheet.2.Assume the fair value of the bonds on December 31, 2014, had risen to $736 million. Preparethe journal entry to adjust the bonds to their fair value for presentation in the December 31,2014, balance sheet.
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Chapter 17 / Exercise E 17-6A
College Accounting, Chapters 1-27
Heintz/Parry
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E 1428: On January 1, 2013, Rapid Airlines issued $200 million of its 8% bonds for $184 million. Thebonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. RapidAirlines records interest at the effective rate and elected the option to report these bonds at their fairvalue. On December 31, 2013, the fair value of the bonds was $188 million as determined by theirmarket value in the overthecounter market.Required:1.Prepare the journal entry to record interest on June 30, 2013 (the first interest payment).2.Prepare the journal entry to record interest on December 31, 2013 (the second interestpayment).3.Prepare the journal entry to adjust the bonds to their fair value for presentation in theDecember 31, 2013, balance sheet.

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Term
Fall
Professor
RAJAN
Tags
Accounting, Depreciation, Generally Accepted Accounting Principles
We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
College Accounting, Chapters 1-27
The document you are viewing contains questions related to this textbook.
Chapter 17 / Exercise E 17-6A
College Accounting, Chapters 1-27
Heintz/Parry
Expert Verified

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