Reporting Bonds Using the Fair Value Option Royal Inc. holds 10-year, $100,000, 10% annual interest-bearing bonds with a carrying value of $88,800 as of December 31, 2020. Royal Inc. amortizes the discount using the effective interest method. At the time the bonds were issued on June 30, 2020, Royal Inc. elected to account for the bonds using the fair value option. In preparing financial statements for 2020, Royal Inc. will need to make an adjusting entry to reflect the change in the fair value of the bonds. Required a. Assume that the fair value of the $100,000 bonds is $80,000 on December 31, 2020. The decrease in fair value is due to general interest rate changes. Record the adjusting entry on December 31, 2020. b. Assume instead that the fair value of the $100,000 bonds is $95,000 on December 31, 2020. The increase in the fair value of the bonds is due entirely to a change in the credit risk of the debt. Record the adjusting entry on December 31, 2020. Date Account Name Dr. Cr. a. Dec. 31, 2020 O O O O Oo oo b. Dec. 31, 2020 Please answer all parts of the question. Cash Inventory Equipment r to Land Deferred Revenue a C Bonds Payable Discount on Bonds Payable s Discount and Debt Issuance Costs ) t Premium on Bonds Payable Fair Value Adjustment-Bonds Payable Note Payable Discount on Note Payable Premium on Note Payable Fair Value Adjustment-Note Payable Interest Payable Common Stock Paid-in Capital in Excess of Par-Common Stock Paid-in Capital-Stock Warrants Retained Earnings-Prior Period Adjustment Debt Conversion Expense Interest Expense Loss on Redemption of Bonds Gain on Redemption of Bonds Unrealized Gain or Loss-Income Unrealized Gain or Loss-OCI ti