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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?
Note to be reported on Fallen’s 2015 balance sheet
$
(c) What is the effect of recording the fair value option on these notes
on Fallen’s 2016 income?
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