For bonds of similar risk and maturity the market

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Federal Semiconductors issued 11% bonds, dated January 1, with a face amount of $800 million on January 1, 2011. The bonds sold for $739,814,813 and mature in 2030 (20 years). For bonds of similar risk and maturity the market yield was 12%. Interest is paid semiannually on June 30 and December 31. Federal determines interest at the effective rate. Federal elected the option to report these bonds at their fair value. On December 31, 2011, the fair value of the bonds was $730 million as determined by their market value in the over-the-counter market.

Required:

1. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2011, balance sheet.

2. Assume the fair value of the bonds on December 31, 2012, had risen to $736 million. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2012, balance sheet. 

Reference no: EM131006537

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