Mills Corporation acquired as a long-term investment $240,000 of 6% bonds, dated July 1, on July 1, 2021. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Mills paid $200,000 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 $210,000. Required: Prepare the journal entry to record Mills's investment in the bonds on July 1, 2021 and interest on December 31, 2021, at the effective (market) rate. At what amount will Mills report its investment in the December 31, 2021, balance sheet? Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Mills to sell the investment on January 2, 2022, for $190,000. Prepare the journal entry to record the sale.

Mills Corporation acquired as a long-term investment $240,000 of 6% bonds, dated July 1, on July 1, 2021. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Mills paid $200,000 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 $210,000. Required: Prepare the journal entry to record Mills's investment in the bonds on July 1, 2021 and interest on December 31, 2021, at the effective (market) rate. At what amount will Mills report its investment in the December 31, 2021, balance sheet? Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Mills to sell the investment on January 2, 2022, for $190,000. Prepare the journal entry to record the sale.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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