Brief Exercise 17-11

Teal Company invests $8,300,000 in 4% fixed rate corporate bonds on January 1, 2017. All the bonds are classified as available-for-sale and are purchased at par. At year-end, market interest rates have declined, and the fair value of the bonds is now $8,785,000. Interest is paid on January 1.

Prepare journal entries for Teal Company to (a) record the transactions related to these bonds in 2017, assuming Teal does not elect the fair option; and (b) record the transactions related to these bonds in 2017, assuming that Teal Company elects the fair value option to account for these bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.

Date

Account Titles and Explanation

Debit

Credit

(a)Jan. 1, 2017Dec. 31, 2017

EAT_1458217601610_1_7256617501339513

Debt Investments

8,300,000

Cash

8,300,000

Jan. 1, 2017Dec. 31, 2017

EAT_1458217601610_1_3003507417994529

Interest Receivable

332000

Interest Revenue

332000

(To record interest revenue)

Fair Value Adjustment

Cash

(To record fair value adjustment)

No.

Date

Account Titles and Explanation

Debit

Credit

(b)Jan. 1, 2017Dec. 31, 2017

Jan. 1, 2017Dec. 31, 2017

(To record interest revenue)

(To record fair value adjustment)Brief Exercise 17-11

Teal Company invests $8,300,000 in 4% fixed rate corporate bonds on January 1, 2017. All the bonds are classified as available-for-sale and are purchased at par. At year-end, market interest rates have declined, and the fair value of the bonds is now $8,785,000. Interest is paid on January 1.

Prepare journal entries for Teal Company to (a) record the transactions related to these bonds in 2017, assuming Teal does not elect the fair option; and (b) record the transactions related to these bonds in 2017, assuming that Teal Company elects the fair value option to account for these bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.

Date

Account Titles and Explanation

Debit

Credit

(a)Jan. 1, 2017Dec. 31, 2017

EAT_1458217601610_1_7256617501339513

Debt Investments

8,300,000

Cash

8,300,000

Jan. 1, 2017Dec. 31, 2017

EAT_1458217601610_1_3003507417994529

Interest Receivable

332000

Interest Revenue

332000

(To record interest revenue)

Fair Value Adjustment

Cash

(To record fair value adjustment)

No.

Date

Account Titles and Explanation

Debit

Credit

(b)Jan. 1, 2017Dec. 31, 2017

Jan. 1, 2017Dec. 31, 2017

(To record interest revenue)

(To record fair value adjustment)