Federal Semiconductors issued 11% bonds, dated January 1, with a face amount of $880 million on January 1, 2013. The bonds sold for $813,796,294 and mature on December 31, 2032 (20 years). For bonds of similar risk and maturity the market yield was 12%. 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, 2013, the fair value of the bonds was $800 million as determined by their market value in the over-the-counter market.
| Complete the below table to record the following journal entries. (Enter your answers in whole dollars.) |
Semiannual
Interest
Period-End |
Cash Interest
Paid |
Bond Interest
Expense |
Increase in
Balance |
Carrying
Value |
Fair Value |
Unrealized
Holding Gain
(loss) |
| 01/01/2013 |
|
|
|
$813,796,294 |
|
|
| 06/30/2013 |
|
|
|
|
|
|
| 12/31/2013 |
|
|
|
|
$800,000,000 |
|
| 06/30/2014 |
|
|
|
|
|
|
| 12/31/2014 |
|
|
|
|
$806,000,000 |
|
|
|
|
|
|
|
|
|
Bonds Payable |
|
Fair Value Adjustment |
|
| 01/01/2013 |
|
813,796,294 |
01/01/2013 |
|
|
|
| 06/30/2013 |
|
|
06/30/2013 |
|
|
|
| 12/31/2013 |
|
|
12/31/2013 |
|
|
|
|
|
813,796,294 |
|
0 |
|
|
| 06/30/2014 |
|
|
06/30/2014 |
|
|
|
| 12/31/2014 |
|
|
12/31/2014 |
|
|
|
|
|
813,796,294 |
|
|
|
|
|
|
|
|
|
|
|
| 1. |
Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2013, balance sheet. (Enter your answers in whole dollars. If no entry is required for aparticulartransaction, select "No journal entry required" in the first account field.)
| Date |
General Journal |
Debit |
Credit |
| jun 30, 2013 |
Interest expense |
|
|
|
Discount on bonds payable |
|
|
|
Cash |
|
|
| Dec 31, 2013 |
interest expense |
|
|
|
discount on bonds payable |
|
|
|
cash |
|
|
| dec 31, 2013 |
fair value adjustment |
|
|
|
|
|
|
|
|
|
|
| 2. |
Assume the fair value of the bonds on December 31, 2014, had risen to $806 million. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2014, balance sheet.(Enter your answers in whole dollars. If no entry is required for a particulartransaction, select "No journal entry required" in the first account field.)
| Date |
General Journal |
Debit |
Credit |
| jun 30, 2014 |
interest expense |
|
|
|
discount on bonds payable |
|
|
|
cash |
|
|
| dec 31, 2014 |
interest expense |
|
|
|
discount on bonds payable |
|
|
|
cash |
|
|
| dec 31, 2014 |
unrealized holding loss |
|
|
|
fair value adjustment |
|
|
|