Heidi Baby Products issued 8% bonds with a face amount of $320 million on January 1, 2013. 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, 2013, 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 interest rate, did the rate increase or decrease?

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The Answer of Heidi Baby Products issued 8% bonds with a face amount of $320 million on January 1, 2013. 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, 2013, 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 interest rate, did the rate increase or decrease?

Heidi Baby Products Issued 8% Bonds with a Face Amount