Reporting bonds at fair value

$$ LO$146$

$[$Note: This is a variation of E $1413$ modified to consider the fair value option for reporting liabilities.$]$

Federal Semiconductors issued $11\%$ bonds, dated January $1,$ with a face amount of $$800$ million on January $1,2024.$

The bonds sold for $$739,813,200$ and mature on December $31,2043(20$ years$).$

For bonds of similar risk and maturity the market yield was $12\%.$

Interest is paid semiannually on June $30$ and December $31.$

Federal determines interest at the effective rate.

Federal elected the option to report these bonds at their fair value.

On December $31,2024,$ the fair value of the bonds was $$730$ million as determined by their market value in the over$-$the$-$counter market.

page $814$

Required:

Prepare the journal entry to adjust the bonds to their fair value for presentation in the December $31,2024,$ balance sheet. Federal determined that none of the change in fair value was due to a decline in general interest rates.

Assume the fair value of the bonds on December $31,2025,$ had risen to $$736$ million. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December $31,2025,$ balance sheet. Federal determined that one$-$half of the increase in fair value was due to a decline in general interest rates.