The effect of recording the fair value option would result in unrealized holding
7) Holiday Company issued its 7 %, 25-year mortgage bonds in the principal amount of $ 3,019,000 on January 2, 2000, at a discount of $ 158,000, which it proceeded to amortize by charges to expense over the life of the issue on a straight-line basis. The indenture securing the issue provided that the bonds could be called for redemption in total but not in part at any time before maturity at 104 % of the principal amount, but it did not provide for any sinking fund.
On December 18, 2014, the company issued its 11 %, 20-year debenture bonds in the principal amount of $ 4,277,000 at 101, and the proceeds were used to redeem the 7 %, 25-year mortgage bonds on January 2, 2015. The indenture securing the new issue did not provide for any sinking fund or for redemption before maturity.
( a) Prepare journal entries to record the issuance of( 1) the 11 % bonds and( 2) the redemption of the 7 % bonds.( If no entry is