Exercise 14-19 Coronado Company commonly issues long-term notes payable to its v
ID: 2531092 • Letter: E
Question
Exercise 14-19
Coronado Company commonly issues long-term notes payable to its various lenders. Coronado has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Coronado 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 (Coronado’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.)
Date
Account Titles and Explanation
Debit
Credit
(b) At what amount will the note be reported on Coronado’s 2018 balance sheet?
(c) What is the effect of recording the fair value option on these notes on Coronado’s 2019 income?
Carrying Value
Fair Value
December 31, 2017 $58,200 $58,200 December 31, 2018 43,200 41,600 December 31, 2019 37,800 39,700Explanation / Answer
(a) Prepare the journal entry at December 31 (Coronado’s year-end) for 2017, 2018, and 2019, to record the fair value option for these notes
Carrying Value
Fair Value
Unrealised Gain / (Loss)
Change Unrealised Gain / (Loss)
December 31
$58,200
$58,200
0
0
December 31
43,200
41,600
1600
1600
December 31
37,800
39,700
(1900)
(3500)
Date
Account Titles and Explanation
Debit
Credit
Dec. 31, 2017
NO ENTRY
Dec. 31, 2018
Note Payable A/c
$1,600
Loss – Income
$1,600
Dec. 31, 201
Unrealised – Loss
$1,900
Note Payable A/c
$1,900
(b) At what amount will the note be reported on Coronado’s 2018 balance sheet?
Note to be reported on Coronado’s 2018 balance sheet = $41,600
(c) What is the effect of recording the fair value option on these notes on Coronado’s 2019 income?
The effect of recording the fair value option would result in unrealized holding
Loss of - $1,900
Carrying Value
Fair Value
Unrealised Gain / (Loss)
Change Unrealised Gain / (Loss)
December 31
$58,200
$58,200
0
0
December 31
43,200
41,600
1600
1600
December 31
37,800
39,700
(1900)
(3500)
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