Determine Dawson net income

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Question - Fair Value Option - Presented below is selected information related to the financial instruments of Dawson Company on December 31, 2020. This is Dawson Company's first year of operations.

 

Carrying Amount

Fair Value (at December 31)

Investment in debt securities (intent is to hold to maturity)

$40,000

$41,000

Investment in Chen Company stock

800,000

910,000

Bonds payable

220,000

195,000

Required -

(a) Dawson elects to use the fair value option for these financial instruments. Assuming that Dawson's net income is $100,000 in 2020. before reporting any securities gains or losses, determine Dawson's net income for 2020. Assume that the difference between the carrying value and fair value is due to credit deterioration.

(b) Record the journal entry, if any, necessary on December 31, 2020, to record the fair value option for the bonds payable.

Reference no: EM133089717

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