Fair Value Option St. Wyncomb Co. has an 8 percent note payable with a carrying

Question

Fair Value Option

St. Wyncomb Co. has an 8 percent note payable with a carrying value of $68,000 on December 31, 2010 whch has a remaining maturity of 6 ears. The carrying, and fair values of the note were:

Notes Payable:

year carrying value fair value

2010 68,000 68,000

2011 58,731 52,374

2012 48,720 49,948

Dt. Wyncomb Co. elected to use the fair value to account for the note.

1. Prepare the journal entries, if any to record the fair calue adjustments for the note payable from 2010 to 2012

2. Prepare a T-account for the unrealized holding gain or loss account. Post the journal entries to the T-account, assume the balance at teh end of 2010 before the fiar alue adjustment was zero.

Explanation / Answer

1.

2.

Dr. Fair Value Adjustment A/c Cr.

Year Particulars Debit Credit 2010 No entry 2011 Fair Value Adjustment A/c (58,731 - 52374) 6357 To 8% Note Payeble A/c 6357 2012 8% Note Payeble A/c 1228 To Fair Value Adjustment A/c (49948 - 48720) 1228

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