Shonen Knife Corporation has elected to use the fair value option for one of its

Question

Shonen Knife Corporation has elected to use the fair value option for one of its notes payable. The note was issued at an effective rate of 12% and has a carrying value of $18,220. At year-end, Shonen Knife’s borrowing rate has declined; the fair value of the note payable is now $19,630.

(a) Determine the unrealized holding gain or loss on the note.

(b) Prepare the entry to record any unrealized holding gain or loss. (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.)

Account Titles and Explanation

Debit

Credit

Explanation / Answer

Answer:(a) Unrealized Holding gain or loss=19630-18220=$1410

Answer:(b)

Securities Fair Value Adjustment A/C Dr. $1410

              To Unrealized Holding Gain and Loss - Income $1410

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