E16.8 (LO 1) (Fair Value Option) Presented below is selected information related to the financial instruments of Dawson Ltd. at December 31, 2025 (amounts in thousands). This is Dawson Ltd.’s first year of operations.

Carrying Amount Fair Value

(at December 31)

Debt investments (intent is to hold for collection) ¥ 40,000 ¥ 41,000 Bonds payable 220,000 195,000 Instructions

a. Dawson elects to use the fair value option whenever possible. Assuming that Dawson’s net income is

¥100,000 in 2025 before reporting any financial instrument gains or losses, determine Dawson’s net income for 2025.

b. Record the journal entry, if any, necessary at December 31, 2025, to record the fair value option for the bonds payable.