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
14th Edition
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Carl Warren, Jim Reeve, Jonathan Duchac
Chapter15: Investments And Fair Value Accounting
Section: Chapter Questions
Problem 5E
Related questions
Question
![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.
No
2
Date
1-Jul-21
No
1
31-Dec-21
Investment
Date
2-Jan-22
General Journal
General Journal
Debit Credit
Debit
Credit](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ffac4b1b8-6a1a-44ad-8899-9e3dc5acdbbf%2F6c3b786e-05a2-4b7a-af1b-e0711d51588d%2Fwsgesvl_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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.
No
2
Date
1-Jul-21
No
1
31-Dec-21
Investment
Date
2-Jan-22
General Journal
General Journal
Debit Credit
Debit
Credit
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