On 1/1/20X1, Illini issued 10% bonds dated 1/1/20X1, with a face amount of $40,000. The bonds mature on 12/31/20X4 (4 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31. Suppose Illini elects the fair value option to account for these (and only these) bonds and adjust for the fair value changes on every June 30 and December 31. The market interest rates for bonds of similar risk and maturity on 6/30/20X1, 12/31/20X1, 6/30/20X2, and 12/31/20X2 are 10%, 8%, 12%, and 15% respectively. All interest rate changes are due to Illini's own credit risk changes.

Project 2.1 Part 3 Balance Sheet

Date

Account Name

Debit

Credit

1/1/20X1

Cash

30000[A]

Discount on bonds

10000[B]

Bonds payable

40000[C]

6/30/20X1

Interest expense

5000[D]

Discount on bonds

1000[E]

Cash

4000[F]

6/30/20X1

Unrealized holding gain/loss-OCI

[G]

Fair value adjustment

[H]

12/31/20X1

Interest expense

[I]

Discount on bonds

[J]

Cash

[K]

12/31/20X1

Unrealized holding gain/loss-OCI

[L]

Fair value adjustment

[M]

6/30/20X2

Interest expense

[N]

Discount on bonds

[O]

Cash

[P]

6/30/20X2

Fair value adjustment

[Q]

Unrealized holding gain/loss-OCI

[R]

12/31/20X2

Interest expense

[S]

Discount on bonds

[T]

Cash

[U]

12/31/20X2

Fair value adjustment

[V]

Unrealized holding gain/loss-OCI

[W]