Muir,lad.measures its trading securities at fair value.It has liabilities that it also measures using the fair value option.Muir has bonds outstanding (originally sold for $2,400,000)in the amount of $2,000,000 with a current bond premium of $340,000.The bonds were selling at 101 on the market at its year end.At what value should it report these bonds on its balance sheet at year end?

Question

Quizplus · Accepted Answer

The bonds should be reported at their fair value, which is 101% of the face value. Therefore, $2,000,000 x 1.01 = $2,020,000. However, the question asks for the value including the premium, so $2,000,000 + $340,000 = $2,340,000.

Muir,ladMeasures Its Trading Securities at Fair Value