Record any reclassification adjustment. Req 1 and 2NoSuppose Moody's bond rating agency upgraded the risk rating of the bonds, and Mills decided to sell the investment onJanuary 2, 2025, for $314 million. Prepare the journal entries required on the date of sale.Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not roundintermediate calculations. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as5.5).12Req 33DateJanuary 02, 2025Req 4General JournalFair value adjustmentGain on investment (unrealized, OCI)January 02, 2025 CashJanuary 02, 2025 Reclassification adjustment (OCI)Fair value adjustmentInvestment in bondsPremium on bond investmentGain on investment (NI)Debit34.034.0 x314.0Credit34.034.0260.038.215.8Show less A Exercise 12-11 (Algo) Available-for-sale securities; financial statement effects [LO12-1, 12-4]Mills Corporation acquired as a long-term investment $260 million of 6% bonds, dated July 1, on July 1, 2024. Company managementhas classified the bonds as an available-for-sale investment. The market interest rate (yield) was 4% for bonds of similar risk andmaturity. Mills paid $300 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As aresult of changing market conditions, the fair value of the bonds at December 31, 2024, was $280 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 theeffective (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 upgradthe risk rating of the bonds, and Mills decided to sell the investment on January 2,2025, for $314 million. Prepare the journal entries required on the date of sale.

Long-term investment -Assets designated for long-term holding by a person or business are known as…

Answered: Suppose Moody's bond rating agency…

Financial & Managerial Accounting

13th Edition

ISBN:9781285866307

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter13: Investments And Fair Value Accounting

Section: Chapter Questions

Problem 20EX

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(Appendix 14.1)Pamlico Company has a 500,000, 15%, 3-year note dated January 1, 2019, payable to Forest National Bank. On December 31, 2020, the bank agreed to settle the note and unpaid interest of 75,000 for 50,000 cash and marketable securities having a current market value of 375,000. Pamlicos acquisition cost of the securities is 385,000. Ignoring income taxes, what amount should Pamlico report as a gain from the debt restructuring on its 2020 income statement? a. 65,000 b. 75,000 c. 140,000 d. 150,000
Transfer between Categories On December 31, 2018, Leslie Company held an investment in bonds of Kaufmann Company which it categorized as being held to maturity. At that time, the 8%, 100,000 face value bonds had a carrying value of 107,023.56 and were being amortized using the effective interest method based on a market rate of 7%. Interest on these bonds is paid annually each December 31. On December 31, 2019, after recording the interest earned, Leslie decided to reclassify the Kaufmann bonds to its available-for-sale category in anticipation of a major restructuring. At that time, the ending quoted market price for the bonds was 105,000. Required: Prepare the journal entries on December 31, 2019, to record the interest earned and the reclassification.
Wilbury Corporation issued 1 million of 13.5% bonds for 985,071.68. The bonds are dated and issued October 1, 2019, are due September 30, 2020, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Required: 1. Prepare a bond interest expense and discount amortization schedule using the straight-line method. 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of the fiscal year December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. If income before interest and income taxes of 30% in 2020 is 500,000, compute net income under each alternative. 5. Assume the company retired the bonds on June 30, 2020, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight line method of amortization b. effective interest method of amortization 6. Compute the companys times interest earned (pretax operating income divided by interest expense) for 2020 under each alternative.
Bats Corporation issued 800,000 of 12% face value bonds for 851,705.70. The bonds were dated and issued on April 1, 2019, are due March 31, 2023, and pay interest semiannually on September 30 and March 31. Bats sold the bonds to yield 10%. Required: 1. Prepare a bond interest expense and premium amortization schedule using the straight-line method. 2. Prepare a bond interest expense and premium amortization schedule using the effective interest method. 3. Prepare any adjusting entries for the end of the fiscal year, December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. Assume the company retires the bonds on June 30, 2020, at 103 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight-line method of amortization b. effective interest method of amortization

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