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Question 1: Mills Corporation acquired as a long-term investment $240 million of 8% bonds, dated July...

Question 1: Mills Corporation acquired as a long-term investment $240 million of 8% 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 6% for bonds of similar risk and maturity. Mills paid $280.0 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 $265.0 million.

Required:
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 $292 million. Prepare the journal entry to record the sale.

Journal entry worksheet

  • Prepare any journal entry needed to adjust the investment to fair value.

Note: Enter debits before credits.
Date General Journal Debit Credit
January 02, 2022

Droplist:

  • No journal entry required
  • Cash
  • Discount on bond investment
  • Gain on investments (NI)
  • Insurance expense
  • Interest receivable
  • Interest revenue
  • Investment in bonds
  • Loss on investments (NI)
  • Premium on bond investment
  • Retained earnings
Business   Accounting   
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Homework Answers

Answer #1

Journal Entry for sale of investment with relevant calculation are as under. Thank you.

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