Mills Corporation acquired as a long-term investment $250 million of 8% 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 6% for bonds of similar risk and maturity. Mills paid $290.0 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 $270.0 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 $300 million. Prepare the journal entry to record the sale.

Mills Corporation acquired as a long-term investment $250 million of 8% 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 6% for bonds of similar risk and maturity. Mills paid $290.0 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 $270.0 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 $300 million. 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

See similar textbooks

Similar questions

Fuzzy Monkey Technologies, Incorporated purchased as a long-term investment $220 million of 8% bonds, dated January 1, on January 1, 2024. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $201 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2024, was $210 million. Required: 1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). 4. At what amount will Fuzzy Monkey report its investment in the December 31, 2024 balance sheet? 5. How would Fuzzy Monkey's 2024 statement of cash flows be affected by this investment? (If more than one approach is possible, indicate the one that is most likely.)
On February 18, 2021, Union Corporation purchased 1,311 IBM bonds as a long-term investment at their face value for a total of $1,311,000. Union will hold the bonds indefinitely, and may sell them if their price increases sufficiently. On December 31, 2021, and December 31, 2022, the market value of the bonds was $1,273,000 and $1,330,000, respectively. Required: 2. & 3. Prepare the adjusting entry for December 31, 2021 and 2022. (If no entry is required for a
On January 1, 2021, Oak Ridge Ltd. purchased $185,000 of 11%, 10-year bonds at face value (100) with the intention of selling the bonds early the next year. Interest is received semi-annually on July 1 and January 1. At December 31, 2021, which is the company's fiscal year end, the bonds were trading in the market at 99 (this means 99% of maturity value). Using the fair value through profit or loss model, prepare the journal entry to record the purchase of the bonds on January 1. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Jan. 1 eTextbook and Media List of Accounts Date Account Titles and Explanation Prepare the journal entry to record the receipt of the interest on July 1. (List all debit entries before credit entries. Credit account titles are…
McWherter Instruments sold $400 million of 8% bonds, dated January 1, on January 1, 2021. The bonds mature on December 31, 2040 (20 years). For bonds of similar risk and maturity, the market yield was 10%. Interest is paid semiannually on June 30 and December 31. Blanton Technologies, Inc., purchased $400,000 of the bonds as a long-term investment. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price of the bonds issued on January 1, 2021. 2. Prepare the journal entries to record (a) their issuance by McWherter and (b) Blanton's investment on January 1, 2021. 3. Prepare the journal entries by (a) McWherter and (b) Blanton to record interest on June 30, 2021 (at the effective rate). 4. Prepare the journal entries by (a) McWherter and (b) Blanton to record interest on December 31, 2021 (at the effective rate). Complete this question by entering your answers in the tabs below. Required…
On January 1, 2018, CEBU Company purchased 12% bonds, having a maturity value of P800,000, for P860,652 including transaction cost of P110,000. The bonds provide the bondholders with a 10% yield, are dated January 1, 2018, and mature Janauary 1, 2023, with interest receivable December 31 of each year. CEBU’s business model requires the accounting of the debt investment at Fair Value Through Other Comprehensive Income (FVOCI). The bonds are quoted at 108 and 109 at the end of 2018 and 2019 respectively. How much is the amount of interest related to bonds was collected in 2019?
Fuzzy Monkey Technologies, Incorporated purchased as a long-term investment $150 million of 6% bonds, dated January 1, on January 1, 2024. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 8%. The price paid for the bonds was $133 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2024, was $140 million. Required: 1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). 4. At what amount will Fuzzy Monkey report its investment in the December 31, 2024 balance sheet? 5. How would Fuzzy Monkey's 2024 statement of cash flows be affected by this investment? (If more than one approach is possible, indicate the one that is most likely.)
On January 1, 2021, Rapid Airlines issued $275 million of its 10% bonds for $254 million. The bonds were priced to yield 12%. Interest is payable semiannually on June 30 and December 31. Rapid Airlines records interest at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2021, the fair value of the bonds was $264 million as determined by their market value in the over-the-counter market. Rapid determined that $1,000,000 of the increase in fair value was due to a decline in general interest rates. Required: 1. to 3. Prepare the journal entries to record interest on June 30, 2021 (the first interest payment), on December 31, 2021 (the second interest payment) and to adjust the bonds to their fair value for presentation in the December 31, 2021, balance sheet. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Answer is not complete.…
On January 1, 2018, CEBU Company purchased 12% bonds, having a maturity value of P800,000, for P860,652 including transaction cost of P110,000. The bonds provide the bondholders with a 10% yield, are dated January 1, 2018, and mature January 1, 2023, with interest receivable December 31 of each year. CEBU’s business model requires the accounting of the debt investment at Fair Value Through Other Comprehensive Income (FVOCI). The bonds are quoted at 108 and 109 at the end of 2018 and 2019 respectively. At what amount should the debt investment be initially recognized at the time of acquisition?
Oso Company purchased a Costco bond for $40,000 on January 1, 2020 at face value with an interest rate of 3% paid and recorded annually on 12/31. Oso Company treats the bond as an available-for-sale investment. 1. On 12/31/20, Oso Company records ALL the entries related to this investment. The fair value of the bond is $45,000. Assume no entries have been recorded to date after the 1/1/20 purchase. Answer the following questions for Oso: a. How much is the investment valued at on Oso's balance sheet? Why is it valued at this amount? b. How much does Oso's net income change by for all entries recorded on 12/31/20 related to this bond? Include the amount and direction. If no change, write no change. 2. On 12/31/21, Oso Company records ALL the entries related to this investment. The fair value of the bond is $42,000. Assume no entries have been recorded since 12/31/20. Answer the following questions for Oso: a. Record the journal entry for any fair value adjustments that are needed. If no…
On January 1, 2018, OCEANIC Company purchased 12% bonds, having a maturity value of P800,000, for P860,652 including transaction cost of P110,000. The bonds provide the bondholders with a 10% yield, are dated January 1, 2018, and mature January 1, 2023, with interest receivable December 31 of each year. OCEANIC’s business model requires the accounting of the debt investment at Fair Value Through Profit or Loss (FVPL). The bonds are quoted at 108 and 109 at the end of 2018 and 2019 respectively. On April 1, 2020, the bonds were sold at 112 plus accrued interest. At what amount should the debt investment be initially recognized at the time of acquisition?
Metlock Incorporated issued $0.81 million of 7.5%, 10-year bonds on July 1, 2019, at face value. Interest is payable each December 31. The company has chosen to apply the fair value option in accounting for the bonds. A risk assessment at December 31, 2020, shows that Metlock’s credit risk has increased, and as a result of the increased credit risk, the fair value of the bonds is $729,000 on that date. a. Prepare the company’s journal entries on December 31, 2020, if Metlock follows ASPE. b. Prepare the company’s journal entries on December 31, 2020, if Metlock follows IFRS 9
On January 1, 2021, Milk Tea Inc. purchased 12% bonds with face amount of P5,000,000 for P5,500,000 including transaction cost of P100,000. The bonds provide an effective yield of 10% The bonds are dated January 1, 2021 and pay interest annually on December 31 of each year. The bonds are quoted at 115 on December 31, 2021. The entity has elected to use the fair value through OCI option. What is the carrying amount of the bond investment on December 31, 2021? A.) 5,400,000 B.) 5,500,000 C.) 5,450,000 D.) 5,750,000