Question

On January 1, 2021, Rapid Airlines issued $210 million of its 8% bonds for $193 million. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. Rapid Airlines records interest at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2021, the fair value of the bonds was $198 million as determined by their market value in the over-the-counter market. Rapid determined that $1,000,000 of the increase in fair value was due to a decline in general interest rates. Required: 1. to 3. Prepare the journal entries to record interest on June 30, 2021 (the first interest payment), on December 31, 2021 (the second interest payment) and to adjust the bonds to their fair value for presentation in the December 31, 2021, balance sheet. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet < 1 2 3 > Record interest on June 30, 2021 (the first interest payment). Note: Enter debits before credits. Date General Journal Debit Credit June 30, 2021

Answer 1

Answer
Journal entry
Date	Account Titles and Explanations	Debit	Credit
30-06-2021	Interest Expenses ($193,00,00,00*5%)	$        96,50,000
	To, Discount on bonds payable		$        12,50,000
	To, Cash ( $210,00,00,00*4%)		$        84,00,000
	(To record first interest payment)
31-12-2021	Interest Expenses ($193,00,00,00+$12,50,000)*5%	$        97,12,500
	To, Discount on bonds payable		$        13,12,500
	To, Cash ( $210,00,00,00*4%)		$        84,00,000
	(To record second interest payment)
31-12-2021	Unrealized holding loss - NI	$        10,00,000
	Unrealized holding loss - OCI	$        65,62,500
	To, Fair Value adjustment                                                       ($198,00,00,00-$193,00,00,00+$12,50,000+$13,12,500)		$        75,62,500
	(To adjust the bonds to fair value)