On January 1, 2018, McMillan Corporation issued $86,000 par value, 6 -year bonds with a 0% stated interest rate. The discount on the bonds is amortized annually each December 31. The market rare of interest on the date of the bond issue was 3.25%. Fair value changes are not the result or instrument specific credit risk. The amortization table for the bond follows. Assume that McMillan elected the fair value option on the date or issue.

Required

Prepare the entry required to adjust the balance of the debt to fair value at the end of the first, second, and third years.

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Amortization Table under Effective Interest Rate Method 0% Cash Carrying Value 3.25% Discount Fair Value Amortization Peńod Interest Effective In terest $70 984 $70,984 $ 2,307 $2 307 73 291 1 72 500 2,382 2 382 75,673 76.817 2.459 2,459 3 78,132 78 002 2,539 2,539 80,671 80 880 2,622 83,325 2,622 83 293 2,707 2,707 86,000 86 000 $15 016 $15.016 Total