Federal Semiconductors issued 11% bonds, dated January 1, with a face amount of

Question

Federal Semiconductors issued 11% bonds, dated January 1, with a face amount of $830 million on January 1, 2018. The bonds sold for $767,557,868 and mature on December 31, 2037 (20 years). For bonds of similar risk and maturity the market yield was 12%. Interest is paid semiannually on June 30 and December 31. Federal determines interest at the effective rate. Federal elected the option to report these bonds at their fair value. On December 31, 2018, the fair value of the bonds was $750 million as determined by their market value in the over-the-counter market. Assume the fair value of the bonds on December 31, 2019 had risen to $756 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.

Explanation / Answer

1)

Note : As the Table is not visible, I have created a Table based on data given in the question

Note 1

Note 2:

Amount in US $ Half-Year ending Interest paid -Cash-See Note 1 Interest Expense - Bond - See Note 2 Increase/ (Decrease) in Balance Carrying Value Fair Value - Given Unrealized Holding Gain/Loss Comun Reference--> 1 2 3.= 2-1 4= Prev Carrying Value + Incr./(Decr.) 5 6=4-5 Jan 1, 2018       76,75,57,868 June 30, 2018 4,56,50,000     4,60,53,472                4,03,472       76,79,61,340 Dec 31, 2018 4,56,50,000     4,60,77,680                4,27,680       76,83,89,020 75,00,00,000                   1,83,89,020 June 30, 2019 4,56,50,000     4,61,03,341                4,53,341       76,88,42,362 Dec 31, 2019 4,56,50,000     4,61,30,542                4,80,542       76,93,22,903 75,60,00,000                   1,33,22,903 Half-Year ending Bonds Payable Half-Year ending Fair Value Adjustment Net Liability (FMV) Jan 1, 2018 76,75,57,868 Jan 1, 2018 June 30, 2018           4,03,472 June 30, 2018 Dec 31, 2018           4,27,680 Dec 31, 2018 Balance 31/12/2018 76,83,89,020    1,83,89,020                75,00,00,000 June 30, 2019           4,53,341 June 30, 2019 Dec 31, 2019           4,80,542 Dec 31, 2019 Balance 31/12/2019 76,93,22,903    1,33,22,903                    -50,66,117 (Diff in Fair Value Adj as at 31/12.2019 and 31/12/2018)

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.