Presented below is selected information related to the financial instruments of Dawson Company at December 31, 2025. This is Dawson Company’s first year of operations.

Instructions

a. Dawson elects to use the fair value option for these investments. Assuming that Dawson’s net income is $100,000 in 2025 before reporting any securities gains or losses, determine Dawson’s net income for 2025. Assume that the difference between the carrying value and fair value is due to credit deterioration.

b. Record the journal entry, if any, necessary at December 31, 2025, to record the fair value option for the bonds payable.

Investment in debt securities (intent is to hold to maturity) Investment in Chen Company stock Bonds payable Carrying Amount $ 40,000 800,000 220,000 Fair Value (at December 31) $ 41,000 910,000 195,000