Prepare the journal entry to record Mills’ investment in the bonds on July 1, 2018. Prepare the journal entries by Mills to record interest on December 31, 2018, at the effective (market) rate. At what amount will Mills report its investment in the December 31, 2018, balance sheet? Why? Suppose Moody’s bond rating agency upgraded the risk rating of the bonds, and Mills decided to sell the investment on January 2, 2019, for $290 million. Prepare the journal entry to record

the question is incomplete, so I looked for a similar one and found the following:

"Mills Corporation acquired as a long-term investment $240 million of 5% bonds, dated July 1, on July 1, 2018. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 3% for bonds of similar risk and maturity. Mills paid $280.0 million for the bonds. The company will receive interest semiannually on June 30 and December 31."

At what amount will Mills report its investment in the December 31, 2018, balance sheet?

July 1, 2018, bonds are purchased at a premium

Dr Investment in bonds 240,000,000

Dr Premium on investment in bonds 40,000,000

    Cr Cash 280,000,000

December 31, 2018, first coupon payment

Dr Cash 12,000,000

   Cr Interest revenue 8,400,000

    Cr Premium on investment in bonds 3,600,000

The carrying value of the investment in bonds account = $280,000,000 - $3,600,000 = $276,4000,000 or $276.4 million

Suppose Moody’s bond rating agency upgraded the risk rating of the bonds, and Mills decided to sell the investment on January 2, 2019, for $290 million.

January 2, 2019

Dr Cash 290,000,000

    Cr Investment in bonds 240,000,000

    Cr Premium on investment in bonds 36,400,000

    Cr Gain on sale of investments 13,600,000

Explanation:

amortization of bond premium using the effective interest method on first coupon received = ($240,000,000 x 5%) - ($280,000,000 x 3%) = $12,000,000 - $8,400,000 = $3,600,000

Premium on investment in bonds = $40,000,000 - $3,600,000 = $36,400,000

answer; at prices that violate government price regulations;