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Prepare journal entry to record mills investment in bonds

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Reference no: EM132487817

Mills Corporation acquired as an investment $260 million of 6% bonds, dated July 1, on July 1, 2021. Company management is holding the bonds in its trading portfolio. The market interest rate (yield) was 4% for bonds of similar risk and maturity. Mills paid $300 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 $280 million.

Required:

Question 1: 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.

Question 2: Prepare the journal entry by Mills to record any fair value adjustment necessary for the year ended December 31, 2021.

Question 3: 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 $314 million. Prepare the journal entries required on the date of sale.

Reference no: EM132487817

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