5) On June 30, 2014, Mischa Auer Company issued $ 4,166,000 face value of 13 %, 20-year bonds at $ 4,479,407, a yield of 12 %. Auer uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31.
( a) Prepare the journal entries to record the following transactions.( Round answers to 0 decimal places, e. g. 38,548. If no entry is required, select " No Entry " for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
( b) Show the proper balance sheet presentation for the liability for bonds payable on the December 31, 2015, balance sheet.( Round answers to 0 decimal places, e. g. 38,548.)
( c) Provide the answers to the following questions.
6) |
Fallen Company commonly issues long-term notes payable to |
its various lenders. Fallen has had a pretty good credit rating such that |
its effective borrowing rate is quite low( less than 8 % on an annual |
basis). Fallen 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. |
Carrying Value |
Fair Value |
December 31, 2014 |
$ 56,930 |
$ 56,930 |
December 31, 2015 |
46,660 |
45,060 |
December 31, 2016 |
38,850 |
40,980 |
( a) Prepare the journal entry at December 31( Fallen’ s year-end) for 2014, 2015, and 2016, to record the fair value option for these notes.( If no entry is required, select " No Entry " for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
( b) At what amount will the note be reported on Fallen’ s 2015 balance sheet?