(L01,2,4) (Fair Value Option) Presented below is selected information related to the financial instruments of Dawson Company at December 31, 2017. This is Dawson Company’s first year of operations.

Carrying Fair Value Amount (at December 31)

Investment in debt securities (intent is to hold to maturity) $ 40,000 $ 41,000 Investment in Chen Company stock 800,000 910,000 Bonds payable 220,000 195,000 Instructions

(a) Dawson elects to use the fair value option for these investments. Assuming that Dawson’s net income is $100,000 in 2017 before reporting any securities gains or losses, determine Dawson’s net income for 2017. Assume that the difference between the carrying value and fair value is due to credit deterioration.

(b) Record the journal entry, if any, necessary at December 31, 2017, to record the fair value option for the bonds payable.