Parrish Industries has bonds outstanding (originally sold for $5,400,000)in the amount of $6,000,000 with a current bond discount of $100,000.The bonds were selling at 104 on the market at its year end.What should be the balance of the Fair Value Adjustment on Bonds Payable?

Question

Quizplus · Accepted Answer

The fair value adjustment on bonds payable is calculated as the difference between the carrying value of the bonds and their fair value. The carrying value is the original selling price ($5,400,000) plus the bond discount ($100,000) which equals $5,500,000. The fair value is the market price of the bonds ($6,000,000), which is higher than the carrying value. Therefore, the fair value adjustment on bonds payable is the difference between the market price and the carrying value, which is $500,000. However, since the market price is higher than the carrying value, the fair value adjustment is a credit balance, indicating that the liability is worth more than what the company originally borrowed. Therefore, the correct answer is D, which indicates a $340,000 credit balance.

Parrish Industries Has Bonds Outstanding (Originally Sold for $5,400,000)in the Amount