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Mills Corporation acquired as a long - term investment $ 2 4 0 million of 7 % bonds, dated July 1 , on July 1

Mills Corporation acquired as a long-term investment $240 million of 7% bonds, dated July 1, on July 1,2024. Company management has classified the bonds as an available-for-sale investment. The market interest rate (yield) was 5% 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 31,2024, was $260 million.
Required:
1. & 2: Prepare the journal entry to record Mills' investment in the bonds on July 1,2024 and interest on December 31,2024, at the effective (market) rate.
3: At what amount will Mills report its investment in the December 31,2024, balance sheet?
4: Suppose Moody's bond rating agency upgraded the risk rating of the bonds, and Mills decided to sell the investment on January 2,2025, for $290 million. Prepare the journal entries to record the fair-value adjustment. Then prepare the journal entry to record any reclassification adjustment. Then prepare the journal entry to record the sale of the investment by Mills.

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