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, 2017 December 31, 2018 December 31, 2019 $55,800 46,500 37,400 $55,800 44,900 39,500 (a) Prepare the journal entry at December 31 (Marin'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 whern amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2019 (b) At what amount will the note be reported on Marin's 2018 balance sheet? Note to be reported on Marin's 2018 balance sheet (c) What is the effect of recording the fair value option on these notes on Marin's 2019 income? The effect of recording the fair value option would result in unrealized holding of

Answer 1

Part A

Date	Account titles and explanation	debit	Credit
Dec. 31, 2017	No entry	0
	No entry		0
Dec. 31, 2018	Notes payable	1600
	Unrealized Holding Gain or Loss - income		1600
Dec. 31, 2019	Unrealized Holding Gain or Loss - Income	3700
	Notes payable		3700

Part B

Note to be reported on Marin’s 2018 balance sheet = $44,900

Part C

The effect of recording the fair value option would result in unrealized holding loss of $3700

Year ending	Carrying value	Fair value	Unrealized holding gain or loss	Change in unrealized holding gain or loss
2017	55800	55800	0	0
2018	46500	44900	1600	1600
2019	37400	39500	2100	(3700)