On January 1, 2021, Rapid Airlines issued $285 million of its 8%
bonds for $262 million. The bonds were priced to yield 10%.
Interest is payable semiannually on June 30 and December 31. Rapid
Airlines records interest at the effective rate and elected the
option to report these bonds at their fair value. On December 31,
2021, the fair value of the bonds was $275 million as determined by
their market value in the over-the-counter market. Rapid determined
that $1,000,000 of the increase in fair value was due to a decline
in general interest rates.
Required:
1. to 3. Prepare the journal entries to record interest on June 30, 2021 (the first interest payment), on December 31, 2021 (the second interest payment) and to adjust the bonds to their fair value for presentation in the December 31, 2021, balance sheet. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
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