Question

Chios Corporation issued 10-year, 8% interest-bearing bonds payable at face value for $36,000 on January 1, 2020. At that time, Chios Corporation elected to account for the bonds payable using the fair value option method. At December 31, 2020, the fair value of the bonds payable was $35,640 due to an increase in Chios Corporation's borrowing rate because of a decline in Chios Corporation's credit rating. The entry to adjust the bonds payable under the fair value option method on December 31, 2020 includes a:

Answer 1

Answer: c. debit of $360 Unrealized Gain or Loss-Income

Step-by-step explanation:

The entry to adjust the bonds payable under the fair value option method on December 31, 2020 will be shown below:

December 31, 2020:

Debit Unrealized gain or loss Income ($36000 - $35640) = $360

Credit Fair Value Adjustment = $360

(To record fair value adjustment)