Question

Appling Enterprises issued 10% bonds with a face amount of $530,000 on January 1, 2021. The bonds sold for $487,478 and mature in 2040 (20 years). For bonds of similar risk and maturity the market yield was 11%. Interest is paid semiannually on June 30 and December 31. Appling determines interest expense at the effective rate. Appling elected the option to report these bonds at their fair value. The fair values of the bonds at the end of each quarter during 2021 as determined by their market values in the over-the-counter market were the following:

Appling Enterprises issued 10% bonds with a face amount of $530,000 on January 1, 2021. The bonds sold for $487,478 and mature in 2040 (20 years). For bonds of similar risk and maturity the market yield was 11%. Interest is paid semiannually on June 30 and December 31. Appling determines interest expense at the effective rate. Appling elected the option to report these bonds at their fair value. The fair values of the bonds at the end of each quarter during 2021 as determined by their market values in the over-the- counter market were the following: March 31 June 30 September 30 December 31 $520,000 500,000 494,000 501,000 General (risk-free) interest rates did not change during 2021. Required: 1. By how much will Appling's comprehensive income be increased or decreased by the bonds (ignoring taxes) in the March 31 quarterly financial statements? 2. By how much will Appling's comprehensive income be increased or decreased by the bonds (ignoring taxes) in the June 30 quarterly financial statements? 3. By how much will Appling's comprehensive income be increased or decreased by the bonds (ignoring taxes) in the September 30 quarterly financial statements? 4. By how much will Appling's comprehensive income be increased or decreased by the bonds (ignoring taxes) in the December 31 annual financial statements? (For all requirements, do not round your intermediate calculations.) 1. Appling's comprehensive income will be Appling's comprehensive income will be Appling's comprehensive income will be Appling's comprehensive income will be decreased decreased increased decreased by by by by $ $ $ 32,522 6,000 > 4,000

Answer 1

	Value at beginning	Current value	Decrease in value (A)		Capital	Interest paid (B)		(A+B)
March	487478	520000	32522					32522	Decrease
June	520000	500000	-20000		530000 * 10% semi annual	26500		6500	Decrease
Sep	500000	494000	-6000					-6000	Increase
Dec*	487478	501000	13522		530000 * 10% annual	53000		66522	Decrease

*Since for Decemebr annual financial statements are to be presented