Mills Corporation acquired as a long-term investment $230 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 $260 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 $250 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. 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 $270 million. Prepare the journal entries required on the date of sale.
Mills Corporation acquired as a long-term investment $230 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 $260 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
Required:
1. & 2. Prepare the
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 $270 million. Prepare the journal entries required on the date of sale.
Journal entries are used to keep track of financial transactions. To create a journal entry, you enter transaction data into your company's books. Every general ledger journal entry will include the transaction date, amount, affected accts with account numbers, and a description. A reference number, such as a check number, and a short explanation of the transaction may also be included in the journal entry.
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