Question

Jane Inc. issued 6% bonds with a face of $790,000,000 for $726,000,000 cash on January 1, 2021, when the effective rate was 8%. Jane pays interest semiannually on June 30 and December 31, records interest at the effective rate, and adjusts the bonds to their fair value on Deecmber 31. There was no change in rates during the first 6 months of 2021. On December 31, 2021, the fair value of the bonds was $742,000,000, and $1,000,000 of the increase in fair value was due to a change in the general (risk-free) market rate.

Required:

1. Record the first interest payment on June 30, 2021. Round your answer the the nearest $.

2. Record the second interest payment on on December 31, 2021. Round your answer to the nearest $.

3. Record the fair value adjustment on December 31, 2021.

Answer 1

sollution

Journal Entries
S.no	Date	Account Titles and Explanation	Debit	Credit
1	June 30, 2021	Interest expense a/c [$726000000 * 8%] *6/12)	$29,040,000.00
		Discount On bonds Payable($29040000-$23700000)		$5,340,000.00
		Cash a/c [$790000000 * 6%] *6/12)		$23,700,000.00
		(To Record first interest payment on June 30, 2021)
2	Dec 31, 2021	Interest expense a/c [{$726000000+$5340000} * 8%] *6/12)	$29,253,600.00
		Discount On bonds Payable($29253600-$23700000)		$5,553,600.00
		Cash a/c [$790000000 * 6%] *6/12)		$23,700,000.00
		(To Record second interest payment on on December 31, 2021)
3	Dec 31, 2021	unrealized holding loss -NI	$1,000,000.00
		unrealized holding loss -OCI	$4,106,400.00
		Fair value Adjustment		$5,106,400.00
		(To record Fair value adjustment($742000000-($726000000+$5340000+$5553600)