Fallen Company commonly issues long-term notes payable to its various lenders. F
ID: 2417957 • Letter: F
Question
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.
Carrying Value
Fair Value
(a) Prepare the journal entry at December 31 (Fallen’s year-end) for 2014, 2015, and 2016, to record the fair value option for these notes. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
(b) At what amount will the note be reported on Fallen’s 2015 balance sheet?
(c) What is the effect of recording the fair value option on these notes on Fallen’s 2016 income?
Carrying Value
Fair Value
December 31, 2014 $57,990 $57,990 December 31, 2015 47,580 46,110 December 31, 2016 36,680 38,890Explanation / Answer
a.
b. The amount will be reported at fair value = $46,110
c. Unrealized Holding Loss = (38890 - 36680) + 1470 = $3,680
Date Accounts Titles and Explanation Debit Credit 12/31/2014 No entry 12/31/2015 Notes Payable 1470 Unrealized holding Gain/Loss 1470 12/31/2016 Unrealized holding Gain/Loss 3680 Notes Payable 3680Related Questions
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