Question

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 31, 2018, was $270 million.

Hi I need help with these two tables! Much appreciated

Answer 1

Solution:

Journal Entries - Mills Corporation
Event	Date	Particulars	Debit (In Million)	Credit (In Million)
1	1-Jul-18	Investment in Bond Dr	$240.00
		Premium on bond investment Dr	$40.00
		To Cash		$280.00
		(Being investment in bond recorded)
2	31-Dec-18	Cash Dr ($240 * 6% * 6/12)	$7.20
		To Premium on bond investment		$1.60
		To Interest revenue ($280*4%*6/12)		$5.60
		(Being revenue recoginition for bond interest and discount amortized)
3	31-Dec-18	Unrealized holding gain or loss - OCI Dr	$8.40
		To Fair value adjustment Dr ($280 - $270 - $1.60)		$8.40
		(Being adjusting entry to record investment at fair value)
4	2-Jan-19	Fair value adjustment Dr	$8.40
		To Reclassification adjustment - OCI		$8.40
		(Being reversal of fair value adjustment at the time of sale)
5	2-Jan-19	Cash Dr	$290.00
		To Preimum on bond investment		$38.40
		To Investment in Bond		$240.00
		To Gain on sale of investment		$11.60
		(To record sale of investment)