Assume the fair value of the bonds on december 31 2014 had

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Reference no: EM13574436

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.

Required:
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

Reference no: EM13574436

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