Eskew, Inc., which closes its books on December 31, is authorized to issue $500,000 of 9%, 15- year bonds dated May 1, 2018, with interest payments on November 1 and  May 1.

REQUIRED:

Assuming that the bonds were sold at 100 plus accrued interest on October 1, 2018, prepare the necessary journal entries for items a-f below.

a. The bond issuance.

b. Payment of the first semiannual period's interest on November 1, 2018.

c. Accrual of bond interest expense at December 31, 2018.

d. The adjustment to fair value on December 31, 2018, assuming that Eskew, Inc., elected to use the fair value option. On that date, the bond traded at a price of 99 (99% of par value) in the bond market. (Assume that the change in fair value results from a change in market interest rates rather than a change in instrument-specific credit risk.)

e. Payment of the semiannual interest on May 1, 2019. (The firm does not make reversing entries.)

f. Retirement of $300,000 of the bonds at 101 on May 1, 2023 (immediately after the interest payment on that date). Assume that the fair value adjustment account for the entire issue has a debit balance of $15,000 as of that date.

g. Suppose fair value adjustments of bond values were not posted to net income, but rather to other comprehensive income. How would Eskew, Inc.'s December 31, 2018, financial statements change?