Question

Sunland Company loans Sarasota Company $2,000,000 at 6% for 3 years on January 1, 2017. Sunland intends to hold this loan to maturity. The fair value of the loan at the end of each reporting period is as follows.

December 31, 2017		$2,048,000
December 31, 2018		2,019,000
December 31, 2019		2,000,000

Prepare the journal entry(ies) at December 31, 2017, and December 31, 2019, for Sunland related to these bonds, assuming (a) it does not use the fair value option, and (b) it uses the fair value option. Interest is paid on January 1. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.	Date	Account Titles and Explanation	Debit	Credit
(a)	Dec. 31, 2017Dec. 31, 2018Dec. 31, 2019
	Dec. 31, 2017Dec. 31, 2018Dec. 31, 2019

No.	Date	Account Titles and Explanation	Debit	Credit
(b)	Dec. 31, 2017Dec. 31, 2018Dec. 31, 2019
		(To record interest revenue)
		(To record fair value adjustment)
	Dec. 31, 2017Dec. 31, 2018Dec. 31, 2019
		(To record interest revenue)
		(To record fair value adjustment)

Answer 1

a. It does not use fair value option

Date	Particular	Debit	Credit
December 31, 2017	Interest receivable	$120,000
	Interest revenue ($2,000,000 * 6%)		$120,000
December 31, 2019	Interest receivable	$120,000
	Interest revenue		$120,000

b. It uses fair value option

Date	Particular	Debit	Credit
December 31, 2017	Interest receivable ($2,000,000 * 6%)	$120,000
	Interest revenue		$120,000
December 31, 2017	Debt investment	$48,000
	Unrealized holding gain or loss income ($2,048,000 - $2,000,000)		$48,000
December 31, 2019	Interest receivable ($2,000,000 * 6%)	$120,000
	Interest revenue		$120,000
December 31, 2019	Debt investment	$19,000
	Unrealized holding gain or loss income ($2,019,000 - $2,000,000)		$19,000