Wildhorse Corporation has elected to use the fair value option for one of its no

Question

Wildhorse Corporation has elected to use the fair value option for one of its notes payable. The note was issued at an effective rate of 11% and has a carrying value of $11,000. At year-end, Wildhorse’s borrowing rate (credit risk) has declined; the fair value of the note payable is now $12,600.

Account Titles and Explanation

Debit

Credit

Wildhorse Corporation has elected to use the fair value option for one of its notes payable. The note was issued at an effective rate of 11% and has a carrying value of $11,000. At year-end, Wildhorse’s borrowing rate (credit risk) has declined; the fair value of the note payable is now $12,600.

Explanation / Answer

1. Unrealized holding loss = Fair value - Book value

= $12600 - $11000 = $1600

2. Journal

Account Titles and Explanation Debit Credit Unrealized holding loss $1600 Notes Payable $1600 (To record unrealized holding loss on notes payable)

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