Mills Corporation acquired as an investment $250 million of 6% bonds, dated July 1, on July 1, 2021. Company managelliethe bonds in its trading portfolio. The market interest rate (yield) was 4% for bonds of similar risk and maturity. Mills paid $300 millionfor the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing marketconditions, the fair value of the bonds at December 31, 2021. was $275 milion.Required:1.&2 Prepare the journal entry to record Mils' investment in the bonds on July 1, 2021 and interest on December 31, 2021, at theeffective (market) rate.3. Prepare the journal entry by Mils 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 $312 million. Prepare the journal entries required on the date of sale

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Answered: Mills Corporation acquired as an…

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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An investor company purchased $427,000 of 8% bonds from the investee company on January 1, 2020, with interest payable on December 31. The bonds were classified as Available-for-Sale. The bonds sold for $706,390. Using the effective-interest method, the investor company revised the Available-for-Sale Debt Securities account on December 31, 2020 and December 31, 2021 by the amortized discount/premium of $6,470. and $8,200, respectively. At December 31, 2020, the fair value of the investee company bonds was $912,000. At December 31, 2021, the fair value of the investee company bonds was $843,000. What is the amount of unrealized holding gain/loss related to this investment in 2021? (Very important: Just enter the amount. DO NOT put a plus or minus sign in front of the amount.)
Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200 million for the bonds. The company will receive interest semiannually on June 30 and December 31. Company management has classified the bonds as available-for-sale investments. As a result of changing market conditions, the fair value of the bonds at December 31, 2018, was $210 million. 1. Prepare any journal entry necessary for Tanner-UNF to report its investment in the December 31, 2018, balance sheet. 2. Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2019, for $190 million. Prepare the journal entries necessary to record the sale, including updating the fair-value adjustment, recording any reclassification adjustment, and recording the sale PLEASE SHOW WORK
Mills Corporation acquired as a long-term investment $235 million of 8% bonds, dated July 1, on July 1, 2024. 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 $270 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, 2024, was $260 million. Suppose Moody's bond rating agency upgraded the risk rating of the bonds, and Mills decided to sell the investment on January 2, 2025, for $280 million. Record any reclassification adjustment.
Mills Corporation acquired as a long-term investment $235 million of 8% bonds, dated July 1, on July 1, 2024. 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 $270 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, 2024, was $260 million. Required: 1. & 2. Prepare the journal entry to record Mills’ investment in the bonds on July 1, 2024 and interest on December 31, 2024, at the effective (market) rate. 3. At what amount will Mills report its investment in the December 31, 2024, 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, 2025, for $280 million. Prepare the journal entries required on the date of sale.
Mills Corporation acquired as a long-term investment $270 million of 8% bonds, dated July 1, on July 1, 2024. 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 $310 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, 2024, was $290 million. Required: 1. & 2. Prepare the journal entry to record Mills' investment in the bonds on July 1, 2024 and interest on December 31, 2024, at the effective (market) rate. 3. At what amount will Mills report its investment in the December 31, 2024, 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, 2025, for $320 million. Prepare the journal entries required on the date of sale. Answer is not complete.…
PUP CAF Corporation acquired a 4-year, P3,000,000 par value bonds when the prevailing rate of interest is 14% on January 1, 2020. Interests of 12% are collectible every December 31. The Company’s business model is to collect contractual cash flows and to sell the bonds when circumstances allow. The bonds were selling at 101 on December 31, 2020 and 95 on December 31, 2021. How much is the unrealized gain (loss) recognized in the statement of comprehensive income for the year ended December 31, 2021?
Tanner-UNF Corporation acquired as a long-term investment $260 million of 6% bonds, dated July 1, on July 1, 2024. Company management has classified the bonds as an available-for-sale investment. The market interest rate (yield) was 8% 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, 2024, was $230 million. Required: 1. & 2. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2024 and interest on December 31, 2024, at the effective (market) rate. 3. Prepare any additional journal entry necessary for Tanner-UNF to report its investment in the December 31, 2024, balance sheet. 4. Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2025, for $200 million. Prepare the journal entries…
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, 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
At the beginning of the current year, Candice Company acquired bonds with face amount of P3,000,000 at a cost of P2,820,750. The bonds are held for trading. Bonds pay interest of 12% semiannually on January 1 and July 1 and mature on January 1, 2023. The bonds have an effective yield of 14% and are quoted at 105 at year end. What is the carrying amount of the investment at the end of the current year?
Fuzzy Monkey Technologies, Incorporated purchased as a long-term investment $150 million of 6% bonds, dated January 1, on January 1, 2024. Management intends to have the investment available for sale when circumstances warrant. When the company purchased the bonds, management elected to account for them under the fair value option. 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-a. At what amount will Fuzzy Monkey report its investment in the December 31, 2024, balance sheet? 4-b. Prepare the journal entry necessary to achieve this reporting objective. 5. How would Fuzzy Monkey’s 2024 statement of cash flows be affected by this…
On January 1, 2021, Paraguay Company purchased P3,000,000 face amount, 9% bonds. The bonds were purchased to yield 8% interest. The bonds mature on January 1, 2026, and pay interest annually on December 31. The entity used 2 decimal places for the PVF. The fair value of the bonds on December 31, 2021, is P3,150,000. The fair value of the bonds on December 31, 2022, is P3,267,500. If measured at FVOCI, how much is the Unrealized gain on change in fair value-OCI, December 31, 2022 (round-off answer to the nearest peso value)?

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