Question
In: Accounting
Mills Corporation acquired as an investment $240 million of 8% bonds, dated July 1, on July...
Mills Corporation acquired as an investment $240 million of 8%
bonds, dated July 1, on July 1, 2021. Company management is holding
the bonds in its trading portfolio. The market interest rate
(yield) was 6% 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 31,
2021, was $265 million.
Required:
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. Prepare the journal entry by Mills to record
any fair value adjustment necessary for the year ended December 31,
2021.
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 $292 million. Prepare the journal entries
required on the date of sale.
Solutions
Expert Solution
Mills Corporation acquired as an investment $240 million of 8% bonds, dated July 1, on July 1, 2021. Company management is holding the bonds in its trading portfolio
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similar risk and maturity. Mills paid $250 million for the bonds.
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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...
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