Question

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.Need Answer ASAP

E14-19 (LO4) (Fair Value Option) Fallen Company commonly issues long-term notes payable to its various lenders. Fallen has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Fallen has elected to use the fair value option for the long-term notes issued to Barclay’s Bank and has the following data related to the carrying and fair value for these notes. Any changes in fair value are due to changes in market rates, not credit risk.

	Carrying Value	Fair Value
December 31, 2017	$54,000	$54,000
December 31, 2018	44,000	42,500
December 31, 2019	36,000	38,000

Instructions

(a)Prepare the journal entry at December 31 (Fallen’s year-end) for 2017, 2018, and 2019, to record the fair value option for these notes.

(b)At what amount will the note be reported on Fallen’s 2018 balance sheet?

(c)What is the effect of recording the fair value option on these notes on Fallen’s 2019 income?

(d)Assuming that general market interest rates have been stable over the period, does the fair value data for the notes indicate that Fallen’s creditworthiness has improved or declined in 2019? Explain.

Please copy and paste answer not attachment.

Answer 1