On January 1, 2022, McMillan Corporation issued $86,000 par value, 6-year bonds with a 0% stated interest rate. The discount on the bonds is amortized annually each December 31. The market rate of interest on the date of the bond issue was 3.25%. Fair value changes are not the result of instrument specific credit risk. The amortization table for the bond follows. Assume that McMillan elected the fair value option on the date of issue.

RequiredPrepare the entry required to adjust the balance of the debt to fair value at the end of the first, second, and third years.

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Period 0 1 23 45 6 Total Amortization Table under Effective Interest Rate Method 0% Cash 3.25% Discount Amortization Interest Effective Interest 0 0 0 0 0 °||| $ 2,307 2,382 2,459 2,539 2,622 2,707 $15,016 $ 2,307 2,382 2,459 2,539 2,622 2,707 $15,016 Carrying Value $70,984 73,291 75,673 78,132 80,671 83,293 86,000 Fair Value $70,984 72,500 76,817 78,002 80,880 83,325 86,000