Mills Corporation acquired as a long-term investment $400,000 of 7% 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 6% for bonds of similar risk and maturity. Mills paid $425,124 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 $421,900. Moody’s bond rating agency upgraded the risk rating of the bonds, and Mills decided to sell the investment on January 2, 2019, for $421,000. Prepare the Journal entries associated with an available for sale investment
1. July 1
Investment | 400000 | |
Premium | 25124 | |
cash | 425124 |
2.
Cash | 14000 | |
Premium | 1246 | |
Interest income | 12754 |
3.
Unrealized loss | 1977 | |
Investment | 1977 |
4.
cash | 421000 | |
realized loss | 2877 | |
premium | 23877 | |
investment | 398023 | |
unrealized loss | 1977 |
My question is why the investment in journal entry 4 is 398023 instead of 400000?
In the other example which is discount rather than premium and it has a realized gain at the end, why the investment will stay same as bond face, but this question the investment is changed?
In entry no. 1, the Investment account is debited by $400,000 and in entry no. 3 it is credited by $1,977. Thus, there is a net debit balance in the Investment account of $400,000 - $1,977 = $398,023. On selling the investment, the balance in the Investment account has to be $0 and hence the same is credited with $398,023.
Every entry of the other example will need to be seen to be able to comment on the same.
Mills Corporation acquired as a long-term investment $400,000 of 7% bonds, dated July 1, on July...
My real question for the question below is that why in journal entry we only record the unrealized loss once which is(425124-1246-421900=1978)? I thought I still need to record the unrealized loss for the time it is sold which is (421000 - 421900= -900), then do the reclassification entry then the final journal entry for sale? I am confusing when I should do the reclassification entry. Suppose period one is the fair value on December and period two is the...
Mills Corporation acquired as a long-term investment $200 million of 7% 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 5% for bonds of similar risk and maturity. Mills paid $240 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...
Mills Corporation acquired as a long-term investment $200 million of 7% 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 5% for bonds of similar risk and maturity. Mills paid $240 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...
Mills Corporation acquired as a long-term investment $260
million of 7% 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
5% for bonds of similar risk and maturity. Mills paid $320 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...
Mills Corporation acquired as a long-term investment $240 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 $280 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...
Mills Corporation acquired as a long-term investment $235 million of 8% 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 6% for bonds of similar risk and maturity. Mills paid $270 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...
Mills Corporation acquired as a long-term investment $220 million of 6% bonds, dated July 1, on July 1, 2018. Company management has positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 4% for bonds of similar risk and maturity. Mills paid $270.0 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...
Mills Corporation acquired as a long-term investment $270 million of 8% bonds, dated July 1, on July 1, 2018. Company management has 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 $310.0 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...
Mills Corporation acquired as a long-term investment $280 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 $330 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...
Mills Corporation acquired as a long-term investment $240 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 $280 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...