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What is the effect of recording the fair value option

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Question - Carla Company commonly issues long-term notes payable to its various lenders. Carla has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Carla has elected to use the fair value option for the long-term notes issued to Barclay's Bank and has the following data related to the carrying and fair value for these notes. Any changes in fair value are due to changes in market rates, not credit risk.

 

Carrying Value

Fair Value

December 31, 2017

$57,700

$57,700

December 31, 2018

44,700

43,400

December 31, 2019

36,200

38,300

Required -

(a) Prepare the journal entry at December 31 (Carla's year-end) for 2017, 2018, and 2019, to record the fair value option for these notes.

(b) At what amount will the note be reported on Carla's 2018 balance sheet?

(c) What is the effect of recording the fair value option on these notes on Carla's 2019 income?

Reference no: EM132482896

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