Mills Corporation acquired as a longterm investment 250 mill

Mills Corporation acquired as a long-term investment $250 million of 6% bonds, dated July 1, on July 1, 2018, Mills determined that it should account for the bonds as an available-for-sale investment. 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, 2018, was $275 million Required 1.& 2. Prepare the journal entry to record Mills\' investment in the bonds on July 1, 2018 and interest on December 31, 2018, at the effective (market) rate. 3. At what amount will Mills report its investment in the December 31, 2018, balance sheet? Suppose Moody\'s bond rating agency upgraded the risk rating of the bonds, and Mills decided to sell the investment on January 2 2019, for $312 million. Prepare the journal entries to record the sale. Complete this question by entering your answers in the tabs below Req 1 and 2 Req 3 Req 4 Prepare the journal entry to record Mills\' investment in the bonds on July 1, 2018 and interest on December 31, 2018, at the effective (market) rate. (If no entry is required for a transaction/event, select \"No journal entry required\" in the first account field. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).) View transaction list Journal entry worksheet 2 Record Mill\'s investment in the bonds on July 1, 2018 Note: Enter debits before credits. Event General Journal Debit Credit

Solution

ans 1 & 2 Date Accounts Title Dr Cr 1/7/2018 Investment in Bonds $250 Premium on Bonds Investment 50 Cash $300 ( investment in bonds recorded) 12/31/2018 Cash (250*6%*6/12) 7.5 Premium on Bonds Investment (bal fig) 1.5 Interest Recvenue (300*4%*6/12) 6 ans 3 Amt shown in Balance Sheet is $275 million ans 4 Cash 312 Gain on sale of Investment (bal fig) $13.5 Investment in Bonds $250 Premium on Bonds Investment (50-1.5) 48.5 If any doubt please comment