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Federal Semiconductors issued 9% bonds, dated January 1, with a face amount of $860 million on...

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Accounting

Federal Semiconductors issued 9% bonds, dated January 1, with aface amount of $860 million on January 1, 2018. The bonds sold for$786,215,929 and mature on December 31, 2037 (20 years). For bondsof similar risk and maturity the market yield was 10%. 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 $770 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 $776 million.Required: Complete the below table to record the following journalentries. 1. & 2. Prepare the journal entry to adjust the bondsto 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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