Question
In: Accounting
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
ekkarill92 answered 2 years agoRelated Solutions
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...
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million of 5% bonds, dated July 1, on July 1, 2018. Company
management is holding the bonds in its trading portfolio. The
market interest rate (yield) was 3% 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, 2018, was...
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million of 5% bonds, dated July 1, on July 1, 2018. Company
management has positive intent and ability to hold the bonds until
maturity. The market interest rate (yield) was 3% for bonds of
similar risk and maturity. Mills paid $300.0 million for the bonds.
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December 31. As a result of changing market conditions, the fair
value of the bonds at December...
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holding the bonds in its trading portfolio. The market interest
rate (yield) was 10% for bonds of similar risk and maturity.
Tanner-UNF paid $220 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 $230...
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