Question
Asked Feb 7, 2020
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Pierre Company has a 12% note payable with a carrying value of $20,000. Pierre applies the fair value option to this note. Given an increase in market interest rates, the fair value of the note is $22,600. Prepare the entry to record the fair value option for this note, assuming (a) no change in credit risk, and (b) the change is due to a change in credit risk.

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Expert Answer

Step 1

(a) When there no change in credit risk, the journal entry for fair value option is as follows:

 

Note: The loss of $2,600 will be transferred to income statement.

Accounting homework question answer, step 1, image 1

 

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