Question
In: Accounting
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 31, 2018, was $290
million.
Required:
1. & 2. Prepare the journal entry to record
Mills’ investment in the bonds on July 1, 2018 and interest on
December 31, 2018, at the effective (market) rate.
3. At what amount will Mills report its investment
in the December 31, 2018, 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, 2019, for $320 million. Prepare the journal entries
to record the sale.
Solutions
ekkarill92 answered 2 years agoRelated Solutions
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