Question

Federal Semiconductors issued 12% bonds, dated January 1, with a face amount of $940 million on January 1, 2021. The bonds sold for $873,516,024 and mature on December 31, 2040 (20 years). For bonds of similar risk and maturity the market yield was 13%. 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, 2021, the fair value of the bonds was $860 million as determined by their market value in the over-the-counter market. Assume the fair value of the bonds on December 31, 2022 had risen to $866 million. Required: Complete the below table to record the following journal entries. 1. & 2. Prepare the journal entries to adjust the bonds to their fair value for presentation in the December 31, 2021, balance sheet, and adjust the bonds to their fair value for presentation in the December 31, 2022, balance sheet. Federal determined that none of the change in fair value in 2021 was due to a decline in general interest rates and one-half of the increase in fair value in 2022 was due to a decline in general interest rates. Complete this question by entering your answers in the tabs below.

Answer 1

Unrealized Holding Gain (Loss) Fair Value Semiannual Interest Period- Cah Interest End Paid 1/01/2021 06/30/2021 56,400,000 12/31/2021 56,400,000 06/30/2022 56,400,000 12/31/2022 56,400,000 Bond Interest Increase in Expense Balance Carrying Value 873,516,024 56,778,542 378,542 873,894,566 56,803,147 403,147 874,297,712 56,829,351 429,351 874,727,064 56,857,259 457,259 875,184,323 860,000,000 14,297,712 866,000,000 9,184,323 Fair Value Adjustment 1/01/2021 06/30/2021 12/31/2021 Bond Payable 873,516,024 1/01/2021 378,542 06/30/2021 403,147 12/31/2021 874,297,712 429,351 06/30/2022 457,259 12/31/2022 875,184,323 14,297,712 14,297,712 860,000,000 06/30/2022 12/31/2022 5,113,390 9,184,323 866,000,000

Credit Date June 30, 2021 Debit 56,778,542 General Journal Interest Expense Discount on Bonds Payable Cash (Being Interest paid on bond) 378,542 56,400,000 56,803,147 December 31, 2021 Interest Expense Discount on Bonds Payable Cash (Being Interest paid on bond) 403,147 56,400,000 14,297,712 December 31, 2021 Fair Value Adjustment Gain on Bonds Payable (unrealized, OCI) (Being bond value adjusted) 14,297,712 June 30, 2022 56,829,351 Interest Expense Discount on Bonds Payable Cash (Being Interest paid on bond) 429,351 56,400,000 56,857,259 December 31, 2022 Interest Expense Discount on Bonds Payable Cash (Being Interest paid on bond) 457,259 56,400,000 5,113,390 December 31, 2022 Loss on Bonds Payable (unrealized, NI) Fair Value Adjustment (Being bond value adjusted) 5,113,390