Homework SoursePina Company commonly issues longterm notes payable to its v
Pina Company commonly issues long-term notes payable to its various lenders. Pina has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Pina 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
(a) Prepare the journal entry at December 31 (Pina’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.)
Date
Account Titles and Explanation
Debit
Credit
(b) At what amount will the note be reported on Pina’s 2018 balance sheet?
(c) What is the effect of recording the fair value option on these notes on Pina’s 2019 income?
| Carrying Value | Fair Value | |||
| December 31, 2017 | $54,400 | $54,400 | ||
| December 31, 2018 | 48,000 | 46,600 | ||
| December 31, 2019 | 33,900 | 35,700 |
Solution
Solution a:
Solution b:
Note to be reported on Pina\'s 2018 Balance Sheet = $46,600
Solution c:
the effect of recording the fair value option on these notes on Pina’s 2019 income = Unrealized holding Loss of Rs. $3,200.
| Journal Entries | |||
| Date | Particulars | Debit | Credit |
| Dec 31,2017 | No Entry (As the fair value and carrying value are same.) | $0.00 | |
| Dec 31,2018 | Note Payable Dr (48000-46600) | $1,400.00 | |
| To Unrealised holding Gain or Loss -Income | $1,400.00 | ||
| (To record unrealized holding Gain on Note payable) | |||
| Dec 31,2018 | Unrealised holding Gain or Loss -(Loss) | $3,200.00 | |
| To Note Payable Dr [(35700-33900) + 1400] | $3,200.00 | ||
| (To record unrealized holding Gain on Note payable) |
