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Mills Corporation acquired as an investment $260 million of 7% bonds, dated July 1, on July...

Mills Corporation acquired as an investment $260 million of 7% bonds, dated July 1, on July 1, 2021. Company management is holding the bonds in its trading portfolio. 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 31, 2021, was $300 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 $330 million. Prepare the journal entries required on the date of sale.

  • Record Mills' investment in the bonds on July 1, 2021.

  • 2

    Record interest on December 31, 2021.

  • 1

    Prepare any journal entry needed to adjust the investment to fair value.

  • 1

    Prepare any journal entry needed to adjust the investment to fair value.

  • 2

    Record the sale of the investment by Mills.

Solutions

Expert Solution

ekkarill92 answered 2 years ago
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