Question
In: Accounting
Mills Corporation acquired as a long-term investment $235 million of 8% bonds, dated July 1, on...
Mills Corporation acquired as a long-term investment $235 million of 8% bonds, dated July 1, on July 1, 2021. Company management has classified the bonds as an available-for-sale investment. The market interest rate (yield) was 6% for bonds of similar risk and maturity. Mills paid $270 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2021, was $260 million.
1. & 2. Prepare the journal entry to record
Mills’ investment in the bonds on July 1, 2021 and interest on
December 31, 2021, at the effective (market) rate.
3. At what amount will Mills report its investment
in the December 31, 2021, balance sheet?
4. Suppose Moody's bond rating agency upgraded the
risk rating of the bonds, and Mills decided to sell the investment
on January 2, 2022, for $280 million. Prepare the journal entries
required on the date of sale.
4.1 Record the fair-value adjustment.
4.2 Record any reclassification adjustment.
4.3 Record the sale of the investment by Mills.
Solutions
ekkarill92 answered 2 months agoRelated Solutions
Mills Corporation acquired as a long-term investment $225 million of 8% bonds, dated July 1, on...
Mills Corporation acquired as a long-term investment $225
million of 8% bonds, dated July 1, on July 1, 2018. Mills
determined that it should account for the bonds as an
available-for-sale investment. The market interest rate (yield) was
6% for bonds of similar risk and maturity. Mills paid $250 million
for the bonds. The company will receive interest semiannually on
June 30 and December 31. As a result of changing market conditions,
the fair value of the bonds at December...
Mills Corporation acquired as a long-term investment $270 million of 8% bonds, dated July 1, on...
Mills Corporation acquired as a long-term investment $270
million of 8% bonds, dated July 1, on July 1, 2018. Mills
determined that it should account for the bonds as an
available-for-sale investment. The market interest rate (yield) was
6% for bonds of similar risk and maturity. Mills paid $310 million
for the bonds. The company will receive interest semiannually on
June 30 and December 31. As a result of changing market conditions,
the fair value of the bonds at December...
Mills Corporation acquired as a long-term investment $225 million of 8% bonds, dated July 1, on...
Mills Corporation acquired as a long-term investment $225
million of 8% bonds, dated July 1, on July 1, 2021. Company
management has classified the bonds as an available-for-sale
investment. The market interest rate (yield) was 6% for bonds of
similar risk and maturity. Mills paid $250 million for the bonds.
The company will receive interest semiannually on June 30 and
December 31. As a result of changing market conditions, the fair
value of the bonds at December 31, 2021, was...
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interest rate (yield) was 10% for bonds of similar risk and
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bonds at December 31, 2018, was...
Mills Corporation acquired as a long-term investment $260 million of 6% bonds, dated July 1, on...
Mills Corporation acquired as a long-term investment $260
million of 6% bonds, dated July 1, on July 1, 2021. Company
management has the positive intent and ability to hold the bonds
until maturity. The market interest rate (yield) was 4% for bonds
of similar risk and maturity. Mills paid $300.0 million for the
bonds. The company will receive interest semiannually on June 30
and December 31. As a result of changing market conditions, the
fair value of the bonds at...
Mills Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on...
Mills Corporation acquired as a long-term investment $240
million of 6% bonds, dated July 1, on July 1, 2018. Mills
determined that it should account for the bonds as an
available-for-sale investment. The market interest rate (yield) was
4% for bonds of similar risk and maturity. Mills paid $280 million
for the bonds. The company will receive interest semiannually on
June 30 and December 31. As a result of changing market conditions,
the fair value of the bonds at December...
Mills Corporation acquired as a long-term investment $260 million of 7% bonds, dated July 1, on...
Mills Corporation acquired as a long-term investment $260
million of 7% bonds, dated July 1, on July 1, 2018. Mills
determined that it should account for the bonds as an
available-for-sale investment. The market interest rate (yield) was
5% for bonds of similar risk and maturity. Mills paid $320 million
for the bonds. The company will receive interest semiannually on
June 30 and December 31. As a result of changing market conditions,
the fair value of the bonds at December...
Mills Corporation acquired as a long-term investment $250 million of 6% bonds, dated July 1, on...
Mills Corporation acquired as a long-term investment $250
million of 6% bonds, dated July 1, on July 1, 2021. Company
management has classified the bonds as an available-for-sale
investment. The market interest rate (yield) was 4% for bonds of
similar risk and maturity. Mills paid $300 million for the bonds.
The company will receive interest semiannually on June 30 and
December 31. As a result of changing market conditions, the fair
value of the bonds at December 31, 2021, was...
Mills Corporation acquired as a long-term investment $250 million of 6% bonds, dated July 1, on...
Mills Corporation acquired as a long-term investment $250
million of 6% bonds, dated July 1, on July 1, 2021. Company
management has classified the bonds as an available-for-sale
investment. The market interest rate (yield) was 4% for bonds of
similar risk and maturity. Mills paid $300 million for the bonds.
The company will receive interest semiannually on June 30 and
December 31. As a result of changing market conditions, the fair
value of the bonds at December 31, 2021, was...
Mills Corporation acquired as a long-term investment $200 million of 7% bonds, dated July 1, on...
Mills Corporation acquired as a long-term investment $200
million of 7% bonds, dated July 1, on July 1, 2018. Company
management has the positive intent and ability to hold the bonds
until maturity. The market interest rate (yield) was 5% for bonds
of similar risk and maturity. Mills paid $240 million for the
bonds. The company will receive interest semiannually on June 30
and December 31. As a result of changing market conditions, the
fair value of the bonds at...
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