Answer:
<u>June 30th</u>
interest expense 30240000
Discount on bonds payable 5640000
cash 24600000
<u>December 31th</u>
interest expense 30465600
Discount on bonds payable 5865600
cash 24600000
<u>Adjustment to fair value:</u>
unrealized holding loss 4,494,400
Fair Value Adjustment 4,494,400
Explanation:
procceds: 756,000,000
face value: 820,000,000
discount on bonds payable: 64,000,000
bond rate: 0.03
market rate: 0.04
Effective-rate method:
<u>June 30th</u>
interest expense:
carrying value x market rate
756,000,000 x 0.04 = 30,240,000
proceeds:
face value x bond rate
820,000,000 x 0.03 = 24,600,000
amortization 5,640,000
<u>December 31th</u>
<u>Carrying value:</u>
756,000,000 + 5,640,000 = 761,640,000
<u>Interest expense:</u>
761,640,000 x 0.04 = 30,465,600
Proceeds: 24,600,000
Amortization: 5,865,600
<u>Adjustment:</u>
761,640,000 + 5,865,600 = 767,505,600
market value <u> (772,000,000)</u>
unrealized holding loss 4,494,400