4 Bonds part2 Help Save& Exit Submit Federal Semiconductors issued H% bonds, dat

Question

4 Bonds part2 Help Save& Exit Submit Federal Semiconductors issued H% bonds, dated January 1, with a face amount of $880 million on January 1, 2018. The bonds sold for $813,796,294 and mature on December 31, 2037 paid semiannually on June 30 and December 31. Federal determines interest at the effective rate. Federal nds of similar risk and maturity the market yield was 12%. Interest is elected the option to report these bonds at their fair value. On December 31, 2018, the fair value of the bonds was $800 million as deten value in the over-the-counter market. Assume the fair value of the bonds on December 31, 2019 had risen to $806 million. Required: Complete the below table to record the following journal entries. 1. & 2. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2018, balance sheet, and adjust the bonds to their fair value for presentation in the December 31, 2019, balance sheet. Federal determined that one-half of the increase in fair value was due to a decline in general interest rates Complete this question by entering your answers in the tabs below. General Journal Calculation Complete the below table to record the following journal entries. (Negative amount should be indicated by a minus sign. Round final answers to the nearest whole dollars.) BalaceCarrying Value Fair Value $ 813,796294 in Holding Gain Interest Paid 01/01/2018 800,000,000 12/31/2018 06/30/2019 12/31/2019 $ 806,000,000

Explanation / Answer

Semi Annual Interest period end Cash Interest Paid Bond Interest Expense Increase in Balance Carrying Value Fair Value Unrealized Holding Gain/(Loss) 1/1/2018 $813,796,294 6/30/2018 48400000 $48,827,778 $427,778 $814,224,072 12/31/2018 48400000 $48,853,444 $453,444 $814,677,516 $800,000,000 $14,677,516 6/30/2019 48400000 $48,880,651 $480,651 $815,158,167 12/31/2019 48400000 $48,909,490 $509,490 $815,667,657 $806,000,000 $9,667,657 Bonds Payable Fair Value adjustment Net Liability 1/1/2018 813796294 6/30/2018 427778 12/31/2018 453444 $14,677,516 814677516 $14,677,516 $800,000,000 6/30/2019 $480,651 12/31/2019 $509,490 815667657 $9,667,657 $806,000,000 Journal Entry Date General Journal Debit Credit June 30,2018 Interest Expense $48,827,778 To Discount on Bonds Payable $427,778 To Cash 48400000 31-Dec-18 Interest Expense $48,853,444 To Discount on Bonds Payable $453,444 To Cash 48400000 31-Dec-18 Fair Value Adjustment $14,677,516 To Unrealized holding gain - OCI $14,677,516 June 30,2019 Interest Expense $48,880,651 To Discount on Bonds Payable $480,651 To Cash 48400000 31-Dec-19 Interest Expense $48,909,490 To Discount on Bonds Payable $509,490 To Cash 48400000 31-Dec-19 Unrealized Holding Loss - NI $3,000,000 Unrealized Holding Loss - OCI $2,009,859 To Fair Value Adjustment $5,009,859 (806-800)/2

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