Heidi Baby Products issued 8% bonds with a face amount of $320 million on January 1, 2018. The bonds sold for $300 million. For bonds of similar risk and maturity the market yield was 9%. Upon issuance, Heidi elected the option to report these bonds at their fair value. On June 30, 2018, the fair value of the bonds was $310 million as determined by their market value on the NASDAQ. Will Heidi report a gain or will it report a loss when adjusting the bonds to fair value? If the change in fair value is attributable to a change in the general (risk-free) interest rate, did the rate increase or decrease? If the change in fair value is attributable to a change in the general (risk-free) interest rate, is the gain or loss reported as part of net income? Explain.

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The Answer of Heidi Baby Products issued 8% bonds with a face amount of $320 million on January 1, 2018. The bonds sold for $300 million. For bonds of similar risk and maturity the market yield was 9%. Upon issuance, Heidi elected the option to report these bonds at their fair value. On June 30, 2018, the fair value of the bonds was $310 million as determined by their market value on the NASDAQ. Will Heidi report a gain or will it report a loss when adjusting the bonds to fair value? If the change in fair value is attributable to a change in the general (risk-free) interest rate, did the rate increase or decrease? If the change in fair value is attributable to a change in the general (risk-free) interest rate, is the gain or loss reported as part of net income? Explain.

Heidi Baby Products Issued 8% Bonds with a Face Amount