BE 14-15 Reporting bonds at fair value • LO14-6 AI Tool and Dye issued 8% bonds with a face amount of $160 million on January 1, 2021. The bonds sold for $150 million. For bonds of similar risk and maturity the market yield was 9%. Upon issuance, Al elected the option to report these bonds at their fair value. On June 30, 2021, the fair value of the bonds was $145 million as determined by their market value on the NASDAQ. Will AI report a gain or will it report a loss when adjusting the bonds to fair value? If the change in fair value is attributable to a change in the interest rate, did the rate increase or decrease? Will the gain or loss be reported in net income or as OCI?
BE 14-15 Reporting bonds at fair value • LO14-6 AI Tool and Dye issued 8% bonds with a face amount of $160 million on January 1, 2021. The bonds sold for $150 million. For bonds of similar risk and maturity the market yield was 9%. Upon issuance, Al elected the option to report these bonds at their fair value. On June 30, 2021, the fair value of the bonds was $145 million as determined by their market value on the NASDAQ. Will AI report a gain or will it report a loss when adjusting the bonds to fair value? If the change in fair value is attributable to a change in the interest rate, did the rate increase or decrease? Will the gain or loss be reported in net income or as OCI?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Bonds:-
An interest bearing security or long-term promissory note that a company represents while borrowing money from outsiders is called bond.
will report gain when adjusting the bonds to fair value. This is because if there is decrease in fair value of a liability, it arise gain.
If the change in fair value is attributable to a change in the interest rate, then the interest rate is increased.
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