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1. Ivanhoe Company commonly issues long-term notes payable to its various lender

ID: 2568708 • Letter: 1

Question

1. Ivanhoe Company commonly issues long-term notes payable to its various lenders. Ivanhoe has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Ivanhoe 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. Any changes in fair value are due to changes in market rates, not credit risk.

Carrying Value   Fair Value

December 31, 2017 $58,100 $58,100

December 31, 2018 40,100 38,700

December 31, 2019 33,000 35,000

Prepare the journal entry at December 31 (Ivanhoe’s year-end) for 2017, 2018, and 2019, 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.)

2. (c) Marin Building Co. has a number of long-term bonds outstanding at December 31, 2017. These long-term bonds have the following sinking fund requirements and maturities for the next 6 years.

Sinking Fund

Maturities


Indicate how above information should be reported in the financial statements at December 31, 2017. (Round answers to 0 decimal places, e.g. 38,548.)

Maturities and sinking fund requirements

Sinking Fund

Maturities

2018 $320,000 $110,000 2019 110,000 228,000 2020 110,000 110,000 2021 202,000 - 2022 202,000 159,000 2023 202,000 110,000

Explanation / Answer

Solution 1 - Journal entries in the books of ivanhoe company.

Date Journal entry Debit Credit December 31, 2017 No entry $0 No entry $0 December 31, 2018 Note payable account $1400 Loss - Income $1400 December 31, 2019 Unrealized gain ($2000 + $1400) $3400 Note payable account $3400 (Since total unrealized gain in $2000 but a loss of $1400 is already booked hence total of $3400 should be recognised as unrealises gain to disclose the net unrealized gain of $2000