Question

Marin Company commonly issues long-term notes payable to its various lenders. Marin has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Marin 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 December 31, 2020 December 31, 2021 December 31, 2022 $58,100 40,100 33,000 $58,100 38,700 35,000 (a) Prepare the journal entry at December 31 (Marin's year-end) for 2020, 2021, and 2022, to record the fair value option for these notes. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts.Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Dec. 31, 2020 Dec. 31, 2021 Dec. 31, 2022 (b) At what amount will the note be reported on Marin's 2021 balance sheet? Note to be reported on Marin's 2021 balance sheet
PLEASE SHOW ALL WORK!

THANK YOU.

Answer 1

Solution:

A)

Date	Account titles and explanation	Debit	Credit
Dec. 31,2020	No entry	0
	No entry		0
Dec, 31,2021	Notes payables	1,400
	Unrealized holding gain or loss income		1,400
Dec. 31,2022	Unrealized holding gain or loss income	3,400
	Notes payable		3,400

Part b)

Note to be reported on Marin's 2021 balance sheet = $38,700

c)

The effect od recording the faair vale option would result in unrealized holding loss of $2,000

Year ending	Carrying value	Fair value	Unrealized holding gain or loss	Change in unrealized holding gain or loss
2020	58,100	58,100	0	0
2021	40,100	38,700	1,400	1,400
2022	33,000	35,000	2,000	(3,400)