Question

Only need #3

On January 1, 2018, Rapid Airlines issued $205 million of its 6% bonds for $188 million. The bonds were priced to yield 8%. 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, 2018, the fair value of the bonds was $194 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 entry to record interest on June 30, 2018 (the first interest payment), on December 31, 2018 (the second Interest payment) and adjust the bonds to their fair value for presentation in the December 31, 2018, balance sheet. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.) View transaction list Journal entry worksheet Record entry to adjust the bonds to their fair value for presentation in the December 31, 2018, balance sheet. Note: Enter debits before credits Credit Debit 1,000,000 Date General Journal December 31, 2018 (Unrealized holding loss-NI Unrealized holding loss-OCI Fair value adjustment

Answer 1

Answer:

SOLUTION
Date	Account titles and Explanation	Debit ($)	Credit ($)
June 30, 2018	Interest expense ($188 million * 8%*6/12)	75,20,000
	Discount on bonds payable		13,70,000
	Cash ($205 million * 6%*6/12)		61,50,000
	(To record the first interest payment)
Dec.31,2018	Interest expense [($188 million+$1.37 million)* 8%*6/12]	75,74,800
	Discount on bonds payable		14,24,800
	Cash ($205 million * 6%*6/12)		61,50,000
	(To record the second interest payment)
Dec.31,2018	Unrealized holding loss- NI	10,00,000
	Unrealized holding loss- OCI	22,05,200
	Fair value adjustment		32,05,200
	(To adjust the bonds to their fair value)
Book value of bond =188,000,000+1370000+1424800 =19,07,94,800
				Fair Adjustment=19,07,94,800-194,000,000= $32,05,200