USA: +1 (725) 712-1730 
Sign in
Federal Semiconductors issued 10% bonds, dated January 1, with a face amount of $770 million on January 1, 2016. The bonds sold for $708,222,420 and mature on December 31, 2032 (20 years). For bonds of similar risk and maturity the market yield was 11%. 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, 2016, the fair value of the bonds was $690 million as determined by their market value in the over-the-counter market. Assume the fair value of the bonds on December 31, 2017 had risen to $696 million.
| 1. & 2. | Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2016 and on December 31, 2017, balance sheet. Federal determined that one-half of the increase in fair value was due to a decline in general interest rates. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)
|
ezto.mheducation.com Federal Semiconductors issued 10% bonds, dated January 1, with a face amount of $770 million on January 1, 2016. The bonds sold for $708,222,420 and mature on December 31, 2032 (20 years). For bonds of similar risk and maturity the market yield was 11%. 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, 2016, the fair value of the bonds was $690 million as determined by their market value in the over-the-counter market. Assume the fair value of the bonds on December 31, 2017 had risen to S696 million. Required: Complete the below table to record the following journal entries (Enter your answers in whole dollars.) Unrealized Holding Gain Semiannual Cash Interest Paid Bond Interest Expense Increase in Interest Balance Carrying Value Fair Value Period-End 01/01/2016 06 30/2016 12/31/2016 06/30/2017 12/31/2017 $708,222,420 0$690,000,000 이 $ 696,000,000 Bonds Payable Fair Value Adjustment 01/01/2016 06/30/2016 12/31/2016 708,222.420 01/01/2016 06/30/2016 12/31/2016 708,222,420 06 30/2017 06 30/2017 12/31/2017 12/31/2017 708.222.420 1. & 2. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31 2016 and on December 31, 2017, balance sheet. Federal determined that one-half of the increase in fair value was due to a decline in general interest rates. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)
Expert Answer
Journal Entries in the books of Federal
Amount (in millions)
| Date | Particulars | Dr | Cr | |
|---|---|---|---|---|
| 31 Dec 2016 | Unrealized Loss on Bonds A/c Dr | $ 80 | ||
| To Bonds a/c | $ 80 | |||
| (Being bonds valued at fair market value of $690 millions as on 31-12-2016 | ||||
| 31 Dec 2017 | Bonds a/c Dr | $ 6 | ||
| To Unrealized Loss on Bonds a/c | $ 6 | |||
| (Being bonds recorded at fair vlue as on 31/12/2017, the profit first utilized to set off the earlier losses of the bond) |
