Reporting Bonds Using the Fair Value Option

Mitchell Inc. issued 52 of its 6%, $1,000 bonds on January 1 of Year 1 for $50,614. The bonds pay cash interest semiannually each June 30 and December 31 and were issued to yield 7%. The bonds mature in three years on December 31, and the company uses the effective interest method to amortize bond discounts or premiums. On January 1 of Year 1, Mitchell Inc. elects to account for the bonds using the fair value option.

a. Record the issuance of bonds on January 1 of Year 1. b. Record the interest payment on June 30 of Year 1. c. Record the interest payment on December 31 of Year 1. d. At December 31 of Year 1, the market rate on the bonds drops to 7.5% due to a general increase in market risk. Record the adjustment of bonds payable to fair value.

Note: Round your answers to the nearest whole dollar.

Date	Account Name	Dr.	Cr.
a. Jan. 1, Year 1			Answer
			Answer
			Answer
	To record the issuance of bonds.
b. June 30, Year 1			Answer
			Answer
			Answer
c. Dec. 31, Year 1			Answer
			Answer
			Answer
d. Dec. 31, Year 1			Answer
			Answer
	To record the adjustment of bonds payable.