Federal Semiconductors issued 11% bonds, dated January 1, with a face amount of $100 million on January 1, 2013. The 20-year bonds sold for $92.477 million and mature in 2032. For bonds of similar risk and maturity the market yield was 12%. Interest is paid annually on December 31. Federal uses the effective interest method, and elected to report these bonds at their fair value. On December 31, 2013, the fair value of the bonds was $92.050 million (OTC market).

Prepare the journal entry for the first interest payment on December 31, 2013.

Assume that Federal has already recorded its 2014 interest payment and the fair value of the bonds on December 31, 2014 had dropped to $91.200 million. Calculate the PV of the remaining payments (CV of B/P) as of December 31, 2014 and prepare the journal entry to adjust the bonds to their fair value for presentation on the December 31, 2014 balance sheet.

CV of B/P, 1/1/2013 $92,477,000

2013 disc amortization __________

CV of B/P, 12/31/2013 - $92,050,000 (MV) = (FVadj balance)

2014 disc amortization __________

CV of B/P, 12/31/2014 - (MV) = (FVadj balance)

( FVadj bal)

12/31/2014 Journal entry: _________________________________________________

___________________________________________________