Exercise 14-19 Pronghorn Company commonly issues long-term notes payable to its
ID: 2338174 • Letter: E
Question
Exercise 14-19
Pronghorn Company commonly issues long-term notes payable to its various lenders. Pronghorn has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Pronghorn 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
(a) Prepare the journal entry at December 31 (Pronghorn’s year-end) for 2017, 2018, and 2019, 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.)
Carrying Value
Fair Value
December 31, 2017 $54,200 $54,200 December 31, 2018 42,100 40,700 December 31, 2019 33,200 35,200 Credit Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2019 (b) At what amount will the note be reported on Pronghorn's 2018 balance sheet? Note to be reported on Pronghorn's 2018 balance sheet (c) What is the effect of recording the fair value option on these notes on Pronghorn's 2019 income? The effect of recording the fair value option would result in unrealized holding of $Explanation / Answer
Answer
1.
Date
Particulars
Dr. $
Cr. $
31-Dec-17
No entry required as the Fair Value is same as Carrying Value
31-Dec-18
Notes Payable (42,100 - 40,700)
1,400.00
Unreliased Holding Gain/Loss
1,400.00
(Being fair value of Note recorded)
31-Dec-19
Unreliased Holding Gain/Loss (35,200 - 33,200)
2,000.00
Notes Payable
2,000.00
(Being fair value of Note recorded)
2.
It will be recorded at Fair Value = $40,700
3.
Loss, $2,000
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1.
Date
Particulars
Dr. $
Cr. $
31-Dec-17
No entry required as the Fair Value is same as Carrying Value
31-Dec-18
Notes Payable (42,100 - 40,700)
1,400.00
Unreliased Holding Gain/Loss
1,400.00
(Being fair value of Note recorded)
31-Dec-19
Unreliased Holding Gain/Loss (35,200 - 33,200)
2,000.00
Notes Payable
2,000.00
(Being fair value of Note recorded)
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