Federal Semiconductors issued 11% bonds, dated January 1, with a face amount of $830 million on...

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Accounting

Federal Semiconductors issued 11% bonds, dated January 1, with aface amount of $830 million on January 1, 2018. The bonds sold for$767,557,868 and mature on December 31, 2037 (20 years). For bondsof similar risk and maturity the market yield was 12%. Interest ispaid semiannually on June 30 and December 31. Federal determinesinterest at the effective rate. Federal elected the option toreport these bonds at their fair value. On December 31, 2018, thefair value of the bonds was $750 million as determined by theirmarket value in the over-the-counter market. Assume the fair valueof the bonds on December 31, 2019 had risen to $756 million.

Required:
Complete the below table to record the following journalentries.
1. & 2. Prepare the journal entry to adjustthe bonds to their fair value for presentation in the December 31,2018, balance sheet, and adjust the bonds to their fair value forpresentation in the December 31, 2019, balance sheet. Federaldetermined that one-half of the increase in fair value was due to adecline in general interest rates.

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4.3 Ratings (804 Votes)

1 Note As the Table is not visible I have created a Table based on data given in the question Amount in US HalfYear ending Interest paid CashSee Note 1 Interest Expense Bond See Note 2 Increase Decrease in Balance Carrying Value Fair Value Given Unrealized Holding GainLoss Comun Reference 1 2 3 21 4 Prev Carrying Value IncrDecr 5 645 Jan 1 2018 767557868 June 30 2018 45650000 46053472 403472 767961340 Dec 31 2018 45650000 46077680 427680 768389020 750000000 18389020 June 30 2019 45650000 46103341 453341 768842362 Dec 31 2019 45650000 46130542 480542 769322903 756000000 13322903 HalfYear ending Bonds Payable HalfYear ending Fair Value Adjustment Net Liability FMV Jan 1 2018 767557868 Jan 1 2018 June 30 2018 403472 June 30 2018 Dec 31 2018 427680 Dec 31 2018 Balance 31122018 768389020 18389020 750000000 June 30 2019 453341 June 30 2019 Dec 31 2019 480542 Dec 31 2019 Balance 31122019 769322903 13322903 See Answer

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