Tanner-UNF Corporation acquired as a long-term investment $240million of 6% bonds, dated July 1, on July 1, 2018. The marketinterest rate (yield) was 8% for bonds of similar risk andmaturity. Tanner-UNF paid $200 million for the bonds. The companywill receive interest semiannually on June 30 and December 31.Company management has classified the bonds as available-for-saleinvestments. As a result of changing market conditions, the fairvalue of the bonds at December 31, 2018, was $210 million.
Suppose Moodyâs bond rating agency downgraded the risk rating ofthe bonds motivating Tanner-UNF to sell the investment on January2, 2019, for $190 million. Prepare the journal entries necessary torecord the sale, including updating the fair-value adjustment,recording any reclassification adjustment, and recording thesale.
1. Record the journal entry for reclassification adjustment.
2. Record the journal entry for the sale of the investment byTanner-UNF.
Tanner-UNF Corporation acquired as a long-term investment $240million of 6% bonds, dated July 1, on July 1, 2018. The marketinterest rate (yield) was 8% for bonds of similar risk andmaturity. Tanner-UNF paid $200 million for the bonds. The companywill receive interest semiannually on June 30 and December 31.Company management has classified the bonds as available-for-saleinvestments. As a result of changing market conditions, the fairvalue of the bonds at December 31, 2018, was $210 million.
Suppose Moodyâs bond rating agency downgraded the risk rating ofthe bonds motivating Tanner-UNF to sell the investment on January2, 2019, for $190 million. Prepare the journal entries necessary torecord the sale, including updating the fair-value adjustment,recording any reclassification adjustment, and recording thesale.
1. Record the journal entry for reclassification adjustment.
2. Record the journal entry for the sale of the investment byTanner-UNF.
