Question

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Exercise 12-6 (Algo) Trading securities (LO12-1, 12-3] Mills Corporation acquired as an Investment $240 million of 8% bonds, dated July 1, on July 1, 2021. Company management is holding the bonds in its trading portfolio. The market Interest rate yleld) was 6% for bonds of similar risk and maturity. Mills pald $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 31, 2021. was $265 million Required: 1. & 2. 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. 3. Prepare the journal entry by Mills to record any fair value adjustment necessary for the year ended December 31, 2021. 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 entries required on the date of sale. Complete this question by entering your answers in the tabs below. Req 1 and 2 Reg 3 Reg 4 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. 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 lat Journal entry worksheet Record Mills' investment in the bonds on July 1, 2021. Note: Enter debits before credits General Journal Debit Credit Date July 01, 2021 Record entry Clear entry View general Journal Req 1 and 2 Req3 >

Answer 1

SOLUTION 1 & 2. Journal Entry- S.No. Accounts title and Explanation Investment in Bonds Premium on Bond Investment Cash (To record the investment in bonds) Debit (S) Credit (S) 240.000.000 40,000,000 280,000,000 9,600,000 Cash ($240,000,000* 4%) Premium on bonds Interest Revenue ($280,000,000*3%) (To record interest on December 31, 2021) 1.200.000 8.400,000 3. Amount to be reported in balance sheet- Amount (S) Amount ($) 240,000,000 Investment in Bonds Premium on bonds- Original Premium 12/31/21 Amortization Book value 40,000,000 -1,200,000 38,800,000 278.800,000 Debit (S) Credit ($) 292,000,000 Accounts title and Explanation Cash Gain on sale Premium on bonds Investment in bonds 13,200,000 38.800,000 240,000,000