On January 1, 2024, NFB Visual Aids issued $900,000 of its 10-year, 2% bonds.
• The bonds were priced to yield 4%.
• Interest is payable semi-annually on June 30 and December 31.
• NFB Visual Aids records interest expense at the effective rate and elected the fair value option.
• On December 31, 2024, the fair value of the bonds was $760,000 as determined by their market value in the over-the-counter market.
• General (risk-free) interest rates did not change during 2024.
Required:
1. Determine the price of the bonds at January 1, 2024, and prepare the journal entry to record their issuance.
2. Prepare the journal entry to record interest on June 30, 2024 (the first interest payment).
3. Prepare the journal entry to record interest on December 31, 2024 (the second interest payment).
4. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2024 balance sheet.