question archive On 1/1/20X1, Illini issued 10% bonds dated 1/1/20X1, with a face amount of $40,000
On 1/1/20X1, Illini issued 10% bonds dated 1/1/20X1, with a face amount of $40,000
Subject:FinancePrice: Bought3
On 1/1/20X1, Illini issued 10% bonds dated 1/1/20X1, with a face amount of $40,000. The bonds mature on 12/31/20X4 (4 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31. Suppose Illini elects the fair value option to account for these (and only these) bonds and adjust for the fair value changes on every June 30 and December 31. The market interest rates for bonds of similar risk and maturity on 6/30/20X1, 12/31/20X1, 6/30/20X2, and 12/31/20X2 are 10%, 8%, 12%, and 15% respectively. All interest rate changes are due to Illini's own credit risk changes.
Project 2.1 Part 3 Balance Sheet
Date
Account Name
Debit
Credit
1/1/20X1
Cash
30000[A]
Discount on bonds
10000[B]
Bonds payable
40000[C]
6/30/20X1
Interest expense
5000[D]
Discount on bonds
1000[E]
Cash
4000[F]
6/30/20X1
Unrealized holding gain/loss-OCI
[G]
Fair value adjustment
[H]
12/31/20X1
Interest expense
[I]
Discount on bonds
[J]
Cash
[K]
12/31/20X1
Unrealized holding gain/loss-OCI
[L]
Fair value adjustment
[M]
6/30/20X2
Interest expense
[N]
Discount on bonds
[O]
Cash
[P]
6/30/20X2
Fair value adjustment
[Q]
Unrealized holding gain/loss-OCI
[R]
12/31/20X2
Interest expense
[S]
Discount on bonds
[T]
Cash
[U]
12/31/20X2
Fair value adjustment
[V]
Unrealized holding gain/loss-OCI
[W]
