| Brief Exercise 17-11 | | | | | | |
| | Pharoah Company invests $10,400,000 in 5% fixed rate corporate bonds on January 1, 2017. All the bonds are classified as available-for-sale and are purchased at par. At year-end, market interest rates have declined, and the fair value of the bonds is now $11,078,000. Interest is paid on January 1. |
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| | Prepare journal entries for Pharoah Company to (a) record the transactions related to these bonds in 2017, assuming Pharoah does not elect the fair option; and (b) record the transactions related to these bonds in 2017, assuming that Pharoah Company elects the fair value option to account for these bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) |
| | | | NOTE: I only need help on items I have bolded below Accounts all esle is correct | | | | | | |
| | a) | Pharoah does not elect the fair value option |
| | | Date | Account | Debit | Credit |
| | Jan 1 2017 | Debt Investment | 10,400,000 | |
| | | | Cash | | 10,400,000 |
| | 31-Dec-17 | Interest Recivable (10,400,000*.5%) | 520,000 | |
| | | | Interest Revenue (10,400,000*.5%) | | 520,000 |
| | | | (to record the interest revenue) | | |
| | | | Debt Investment (11,078,000-10,400,000) | 678,000 | |
| | | | Available for Sale (AFS) | | 678,000 |
| | | | (to record fair value adjustment) | | |
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| | b) | Pharoah elects the fair value option |
| | | Date | Account | Debit | Credit |
| | 1-Jan-17 | Debt Investment | 10,400,000 | |
| | | | Cash | | 10,400,000 |
| | Dec 31 2017 | Interest Recivable (10,400,000*.5%) | 520,000 | |
| | | | Interest Revenue | | 520,000 |
| | | | (to record the interest revenue) | | |
| | | | Debt Investment (11,078,000-10,400,000) | 678,000 | |
| | | | Fair Value to Profit and Loss | | 678,000 |
| | | | (to record fair value adjustment) | | |
