Answer:
a. Indigo do not elect fair value option
Journal entries
Date Description DR CR
2020
Jan 1 Bonds-available for sale asset $11,700,000
Cash book 11,700,000
<em>Being the amount paid on acquisition </em>
Dec 31
Interest receivable (4%*11,700,000) 468,000
Income statement 468,000
<em> Being the interest due on the bond at the year end </em>
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<em>b. </em> Indigo elect the fair value option
Date Description DR CR
2020
Jan 1 Bond-available for sale asset 11,700,000
cash book 11,700,000
Being the amount paid on acquisition
Dec 31 Interest receivable 468,000
Income statement 468,000
Being the interest due on the bond at the year end
Dec 31 Bond 687,000
Revaluation surplus 687,000
Being the excess of fair value over the book value
Explanation:
