On January 1, 20X1, Tango-In-The-Night, Inc., issued $75 million of bonds with an 8% coupon interest rate. The bonds mature in 10 years and pay interest semiannually on June 30 and December 31 of each year. The market rate of interest on January 1, 20X1, for bonds of this type was 8%. The company closes its books on December 31. Tango-In-The Night elects the fair value option under ASU 2016-1. Ignore tax effects.

Required:

1. At what price were the bonds issued?

2. What journal entries would Tango-In-The-Night make in 20X1 if the market interest rate for the bonds is 6% at December 31, 20X1?

3. On December 31, 20X2, the general market interest rate for bonds of this type remains at 6%. However, due to Tango-In-The-Night’s deteriorating financial strength, the market interest rate for its debt is 10%. What journal entries would the company make during 20X2?

4. Suppose that the bonds were repurchased for cash on January 1, 20X3, when the market rate for the bonds was 10%. What journal entry would the company make to record the debt retirement?

5. What would the January 1, 20X3, journal entry be if Tango-In-The-Night had not elected the fair value option?