Kobiashi Company sells large store-rack systems and frequently accepts notes receivable from customers as payment. Kobiashi conducts a thorough credit check on its customers, and it charges a fairly low interest rate (½ of 1% payable monthly) on these notes. Kobiashi has elected to use the fair value option for one of these notes and has the following data related to the carrying and fair value for this note (amounts in thousands).

Instructions

(a) Prepare the journal entry at December 31 (Kobiashi’s year-end) for 2015, 2016, and 2017, to record the fair value option for these notes.

(b) At what amount will the note be reported on Kobiashi’s 2016 statement of financial position?

(c) What is the effect of recording the fair value option on this note on Kobiashi’s 2017 income?

Transcribed Image Text:

December 31, 2015 December 31, 2016 Carrying Value 54,000 44,000 Fair Value 54,000 42,500 December 31, 2017 36,000 38,000