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Prepare the adjusting journal entry at december

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Reference no: EM13872121

Purpose: This exercise will give an example of using the fair value option for reporting a long-term note payable.

On April 1, 2014, Halbmann Company issued a long-term note payable for cash. The note had a face value of $200,000 and a stated interest rate of 8%. The market rate of interest was also 8% on April 1. Interest is paid at the end of each month.

Halbmann chooses to use the fair value option for this note. At December 31, 2014, the fair value of the bonds was $185,000 because interest rates in the market place had increased. At December 31, 2015, the fair value of the bonds was $202,000 because the market rate of interest for this type of note had decreased.

Instructions:

a. Prepare the adjusting journal entry at December 31, 2014 required to report the note payable at fair value.

b. Indicate the amounts to be reported on the balance sheet at the end of 2014 and the income statement for 2014 that relate to this note payable.

c. Prepare the adjusting journal entry at December 31, 2015 required to reflect the note payable at fair value.

d. Indicate the amounts to be reported on the balance sheet at the end of 2015 and the income statement for 2015 that relate to this note payable.

Reference no: EM13872121

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