P 14–21 - Appling Enterprises - Report bonds at fair value; quarterly reporting ● LO6
Appling Enterprises issued 8% bonds with a face amount of $400,000 on
January 1, 2011. The bonds sold for $331,364 and mature in 2030 (20
years). For bonds of similar risk and maturity the market yield was 10%.
Interest is paid semiannually on June 30 and December 31. Appling
determines interest expense at the effective rate. Appling elected the
option to report these bonds at their fair value. The fair values of the
bonds at the end of each quarter during 2011 as determined by their
market values in the over-the-counter market were the following:
March 31 $ 350,000
June 30 340,000
September 30 335,000
December 31 342,000
Required:
1. By how much will
Appling’s earnings be increased or decreased by the bonds (ignoring
taxes) in the March31 quarterly financial statements?
2. By how much will
Appling’s earnings be increased or decreased by the bonds (ignoring
taxes) in the June 30 quarterly financial statements?
3. By how much will
Appling’s earnings be increased or decreased by the bonds (ignoring
taxes) in the September 30 quarterly financial statements?
4. By how much will
Appling’s earnings be increased or decreased by the bonds (ignoring
taxes) in the December 31 annual financial statements?
