Question

5. Your company has elected to use the fair value option in recording long-term notes payable because of changes in interests rates. Your FVA account currently has a credit balance of $4,000 and below are the different values of your outstanding notes. Fair Value 78,000 December 31, 2018 December 31, 2019 December 31, 2020 Carrying Value 72.000 78,000 86,000 86,000 76,000 Record the fair value option on December 31 for 2018, 2019, and 2020.

Answer 1

For recording the transactions we will pass the following journal entries:

Journal Entries
Date	Particulars	Debit $	Credit $
2018	FVA A/C - Dr	6000
	To Notes Payable A/C		6000
	(being notes payable recorded at fair value
	(FVA A/C balance = $2000 Dr)
2019	FVA A/C - Dr	8000
	To Notes Payable A/C		8000
	(being notes payable recorded at fair value
	(FVA A/C balance = $10000 Dr)
2020	Notes Payable A/C - Dr	10000
	To FVA A/C		10000
	(being notes payable recorded at fair value
	(FVA A/C balance = $ 0 )