Question
In: Accounting
Kevin Company issues bonds on 1/1/20. Suppose, for Kevin Company (fiscal year end of 12/31), the...
Kevin Company issues bonds on 1/1/20. Suppose, for Kevin Company (fiscal year end of 12/31), the carrying value of Kevin Company bonds at 12/31/20 and 12/31/21 are $106,461 and $105,073 respectively.
Please give the journal entries to mark to market at 12/31/20 and 12/31/21 and supporting calculations in each year for the following scenarios:
1: FMV at 12/31/20 = $107,500; FMV at 12/31/21 = $106,500
2: FMV at 12/31/20 = $107,500; FMV at 12/31/21 = $106,000
3: FMV at 12/31/20 = $107,500; FMV at 12/31/21 = $104,500
4: FMV at 12/31/20 = $105,500; FMV at 12/31/21 = $103,500
5: FMV at 12/31/20 = $105,500; FMV at 12/31/21 = $104,500
6: FMV at 12/31/20 = $105,500; FMV at 12/31/21 = $106,000
Solutions
Expert Solution
| Journal Entries | ||||||||
| Scenarios 1 | ||||||||
| 31-Dec-20 | Unrealized loss on bonds | $1,039 | 31-Dec-21 | Bonds payable | $1,000 | |||
| To Bonds payable | $1,039 | To unrealized gain on bonds | $1,000 | |||||
| Scenarios 2 | ||||||||
| 31-Dec-20 | Unrealized loss on bonds | $1,039 | 31-Dec-21 | Bonds payable | $1,500 | |||
| To Bonds payable | $1,039 | To unrealized gain on bonds | $1,500 | |||||
| Scenarios 3 | ||||||||
| 31-Dec-20 | Unrealized loss on bonds | $1,039 | 31-Dec-21 | Bonds payable | $3,000 | |||
| To Bonds payable | $1,039 | To unrealized gain on bonds | $3,000 | |||||
| Scenarios 4 | ||||||||
| 31-Dec-20 | Bonds payable | $961 | 31-Dec-21 | Bonds payable | $2,000 | |||
| To unrealized gain on bonds | $961 | To unrealized gain on bonds | $2,000 | |||||
| Scenarios 5 | ||||||||
| 31-Dec-20 | Bonds payable | $961 | 31-Dec-21 | Bonds payable | $1,000 | |||
| To unrealized gain on bonds | $961 | To unrealized gain on bonds | $1,000 | |||||
| Scenarios 6 | ||||||||
| 31-Dec-20 | Bonds payable | $961 | 31-Dec-21 | Unrealized loss on bonds | $500 | |||
| To unrealized gain on bonds | $961 | To Bonds payable | $500 | |||||
| MTM=Market to Market | ||||||||
| Workings | ||||||||
| 31-Dec-20 | 31-Dec-21 | |||||||
| Carrying value | FMV | MTM loss(gain) | Carrying value* | FMV | MTM loss(gain) | |||
| Scenarios 1 | $106,461 | $107,500 | $1,039 | $107,500 | $106,500 | ($1,000) | ||
| Scenarios 2 | $106,461 | $107,500 | $1,039 | $107,500 | $106,000 | ($1,500) | ||
| Scenarios 3 | $106,461 | $107,500 | $1,039 | $107,500 | $104,500 | ($3,000) | ||
| Scenarios 4 | $106,461 |
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