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The fair value of the bonds

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Reference no: EM13881226

1.On January 1, 2013, Rapid Airlines issued $200 million of its 8% bonds for $184 million. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. Rapid Airlines records interest at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2013, the fair value of the bonds was $188 million as determined by their market value in the over the counter market.

Required:
1. Prepare the journal entry to record interest on June 30, 2013 (the first interest payment).
2. Prepare the journal entry to record interest on December 31, 2013 (the second interest payment).
3. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2013, balance sheet.

Reference no: EM13881226

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Adjust the bonds to their fair value for presentation : The bonds are not traded on an active exchange.

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