Analyzing and Reporting Financial Statement Effects of Bond Transactions (FSET)

On January 1, Trueman Corp. issued $980,000 of 20-year, 11% bonds for $906,272, yielding a market ( yield) rate of 12%. Interest is payable semiannually on June 30 and December 31.

a. Confirm the bond issue price.

Present value of principal repayment	Answer
Present value of interest payments	Answer
Selling price of bonds

b. Record the bond issuance, semiannual interest payment, and discount amortization on June 30, and semiannual interest payment and discount amortization on December 31, using the financial statement effects template. Use the effective interest rate method.

Note: Use negative signs with your answers, when appropriate. Note: Select "N/A" as your answer if a part of the accounting equation is not affected. Note: Round your answers to the nearest whole dollar.

Balance Sheet				Income Statement
		Cash		Noncash				Contributed		Earned								Net
	Transaction	Asset	+	Assets	=	Liabilities	+	Capital	+	Capital				Revenue	-	Expenses	=	Income
	Jan. 1: Issue bonds.	Answer				Answer				Answer						Answer		Answer
		AnswerBond discountBond premiumBonds payableCashFair value adjustmentGain to adjust bonds to fair valueInterest expenseInterest payableLoss to adjust bonds to fair valueRetained earningsN/A				Bonds payable				AnswerBond discountBond premiumBonds payableCashFair value adjustmentGain to adjust bonds to fair valueInterest expenseInterest payableLoss to adjust bonds to fair valueRetained earningsN/A						AnswerBond discountBond premiumBonds payableCashFair value adjustmentGain to adjust bonds to fair valueInterest expenseInterest payableLoss to adjust bonds to fair valueRetained earningsN/A
						Answer
						AnswerBond discountBond premiumBonds payableCashFair value adjustmentGain to adjust bonds to fair valueInterest expenseInterest payableLoss to adjust bonds to fair valueRetained earningsN/A
	Jun. 30: Interest payment.	Answer				Answer				Answer						Answer		Answer
		AnswerBond discountBond premiumBonds payableCashFair value adjustmentGain to adjust bonds to fair valueInterest expenseInterest payableLoss to adjust bonds to fair valueRetained earningsN/A				AnswerBond discountBond premiumBonds payableCashFair value adjustmentGain to adjust bonds to fair valueInterest expenseInterest payableLoss to adjust bonds to fair valueRetained earningsN/A				AnswerBond discountBond premiumBonds payableCashFair value adjustmentGain to adjust bonds to fair valueInterest expenseInterest payableLoss to adjust bonds to fair valueRetained earningsN/A						AnswerBond discountBond premiumBonds payableCashFair value adjustmentGain to adjust bonds to fair valueInterest expenseInterest payableLoss to adjust bonds to fair valueRetained earningsN/A
	Dec. 31: Interest payment.	Answer				Answer				Answer						Answer		Answer
		AnswerBond discountBond premiumBonds payableCashFair value adjustmentGain to adjust bonds to fair valueInterest expenseInterest payableLoss to adjust bonds to fair valueRetained earningsN/A				AnswerBond discountBond premiumBonds payableCashFair value adjustmentGain to adjust bonds to fair valueInterest expenseInterest payableLoss to adjust bonds to fair valueRetained earningsN/A				AnswerBond discountBond premiumBonds payableCashFair value adjustmentGain to adjust bonds to fair valueInterest expenseInterest payableLoss to adjust bonds to fair valueRetained earningsN/A						AnswerBond discountBond premiumBonds payableCashFair value adjustmentGain to adjust bonds to fair valueInterest expenseInterest payableLoss to adjust bonds to fair valueRetained earningsN/A

c. Trueman elected to report these bonds in its financial statements at fair value. On December 31, these bonds were listed in the bond market at a price of 101 (or 101% of par value). Using the financial statement effects template, record the entry to adjust the reported value of these bonds to fair value.

		Balance Sheet				Income Statement
		Cash		Noncash				Contributed		Earned								Net
	Transaction	Asset	+	Assets	=	Liabilities	+	Capital	+	Capital				Revenue	-	Expenses	=	Income
	Adjust bond to fair value.	Answer				Answer				Answer				Answer		Answer		Answer
		AnswerBond discountBond premiumBonds payableCashFair value adjustmentGain to adjust bonds to fair valueInterest expenseInterest payableLoss to adjust bonds to fair valueRetained earningsN/A				AnswerBond discountBond premiumBonds payableCashFair value adjustmentGain to adjust bonds to fair valueInterest expenseInterest payableLoss to adjust bonds to fair valueRetained earningsN/A				AnswerBond discountBond premiumBonds payableCashFair value adjustmentGain to adjust bonds to fair valueInterest expenseInterest payableLoss to adjust bonds to fair valueRetained earningsN/A				AnswerBond discountBond premiumBonds payableCashFair value adjustmentGain to adjust bonds to fair valueInterest expenseInterest payableLoss to adjust bonds to fair valueRetained earningsN/A		AnswerBond discountBond premiumBonds payableCashFair value adjustmentGain to adjust bonds to fair valueInterest expenseInterest payableLoss to adjust bonds to fair valueRetained earningsN/A

d. Prepare a table summarizing the effect of these bonds on earnings for the year. Note: Do not use negative signs with any of your answers.

Effect on bond		Amount
Coupon payments		Answer
Discount amortization		Answer
Total interest expense		Answer
Fair value adjustment		Answer
Total effect on income (deduction)