Question

Federal Semiconductors issued 10% bonds, dated January 1, with a face amount of $920 million on January 1, 2018. The bonds sold for $846187,826 and mature on December 31, 2037 (20 years). For bonds of similar risk and maturity the market yield was 11%. 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, 2018, the fair value of the bonds was $830 million as determined by their market value in the over-the-counter market. Assume the fair value of the bonds on December 31, 2019 had risen to $836 million. Requlrec Complete the below table to record the following journal entries. 1. & 2. Prepare the joumal entry to adjust the bonds to their fair value for presentation in the December 31, 2018, balance sheet, and adjust the bonds to their fair value for presentation in the December 31, 2019, balance sheet. Federal determined that one-half of the increase in fair value was due to a decline in general interest rates. Complete this question by entering your answers in the tabs below CalculationGral Journal Complete the below table to record the following journal entries. (Negative amount should be indicated by a minus sign. Round final answers to the nearest whole dollars.) nterestBond Interest Increase in Expense Interest Cash Carrying ValueFair Value Holding Gain Balance 01/01/2018 5 846,187.828 06/30/2018 12/31/2018 0S830,000,000 06/30/2019 12/31/2019 0 S836,000,000 Bonds Payable Fair Value Adjustment 01/01/2018 848,187,828 01/D 1/2018 06/30/2018 06/30/2018 12/31/2018 12/31/2018 846,187,828 06/30/2019 06/30/2019 12/31/2019 12/31/2019 846,187,828 Journal entry worksheet Record the interest expense. Note: Enter debits before credits. Date General Journal Debit Credit June 30, 2018 Record entry Clear entry View general journal Journal entry worksheet 4 Record the interest expense. Note: Enter debits before credits. Date General Journal Debit Credit December 31, 2018 Record entry Clear entry View general journal Journal entry worksheet 4 Record the fair value adjustment. Note: Enter debits before credits. Date General Journal Debit Credit December 31, 2018 Record entry Clear entry View general journal Journal entry worksheet Record the interest expense. Note: Enter debits before credits. Date Debit General Journal Credit June 30, 2019 Record entry Clear entry View general jourmal Journal entry worksheet 4 Record the interest expense. Note: Enter debits before credits. Date General Journal Debit Credit December 31, 2019 Record entry Clear entry View general journal Journal entry worksheet 4 Federal determined that one-half of the increase in fair value was due to a decline in general interest rates. Note: Enter debits before credits. Date General Journal Debit Credit December 31, 2019 Record entry Clear entry View general journal

Answer 1

		Semiannual interest Period end	Cash interest paid I	Bond interest expense B=C*5.5%	Increase in balance B-I	Carryung value C	Fair value F	Unrealized holding gain C-F
		1/1/2018				$846,187,826
		6/30/2018	46000000	$46,540,330	$540,330	$846,728,156
		12/31/2018	46000000	$46,570,049	$570,049	$847,298,205	830000000	$17,298,205
		6/30/2019	46000000	$46,601,401	$601,401	$847,899,606
		12/31/2019	46000000	$46,634,478	$634,478	$848,534,085	836000000	$12,534,085
			Bonds payable		Fair value adjustment
		1/1/2018		846187826	1/1/2018
		6/30/2018		$540,330	6/30/2018
		12/31/2018		$570,049	12/31/2018	$17,298,205	$830,000,000
				847298205		$17,298,205	$830,000,000
		6/30/2019		$601,401	6/30/2019
		12/31/2019		$634,478	12/31/2019		($4,764,120)
				$848,534,084.66		$12,534,085
	Date	General Journal	Dr	Cr
No		Interest expenses	$46,540,330
1	6/30 2018	Discount on Bonds payable		$540,330
		Cash		46000000
2	12/31/2018	Interest expenses	$46,570,049
		Discount on Bonds payable		$570,049
		Cash		46000000
3	12/31/2018	Fair value Adjustment	$17,298,205
		Unrealized holding gain-OCI		$17,298,205
4		Interest expenses	$46,601,401
	6/30 2019	Discount on Bonds payable		$601,401
		Cash		46000000
5	12/31/2019	Interest expenses	$46,634,478
		Discount on Bonds payable		$634,478
		Cash		46000000
6	12/31/2019	Unrealized holding Loss-NI (836-830)million /2	3000000
		Unrealized holding Loss-OCI	$1,764,120
		Fair value adjustment		$4,764,120
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