Mills Corporation acquired as a long$-$term investment $$200$ million of $7\%$ bonds, dated July $1,$ on July $1,2024.$ Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate $($yield$)$ was $5\%$ for bonds of similar risk and maturity. Mills paid $$240\mathrm{.}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 $31,2024,$ was $$210\mathrm{.}0$ 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$$s bond rating agency upgraded the risk rating of the bonds, and Mills decided to sell the investment on January $2,2025,$ for $$250$ million. Prepare the journal entry to record the sale.

Answer rating: 100% (QA)

The Answer is in the image, click to view ... View the full answer