Tanner-UNF Corporation acquired as a long-term investment $300million 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 $250 million for the bonds. The companywill receive interest semiannually on June 30 and December 31.Company management is holding the bonds in its trading portfolio.As a result of changing market conditions, the fair value of thebonds at December 31, 2018, was $260 million.
Required:
1. & 2. Prepare the journal entry to recordTanner-UNFâs investment in the bonds on July 1, 2018 and intereston December 31, 2018, at the effective (market) rate.
3. Prepare any additional journal entry necessaryfor Tanner-UNF to report its investment in the December 31, 2018,balance sheet.
4. Suppose Moodyâs bond rating agency downgradedthe risk rating of the bonds motivating Tanner-UNF to sell theinvestment on January 2, 2019, for $240 million. Prepare thejournal entries to record the sale.
Tanner-UNF Corporation acquired as a long-term investment $300million 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 $250 million for the bonds. The companywill receive interest semiannually on June 30 and December 31.Company management is holding the bonds in its trading portfolio.As a result of changing market conditions, the fair value of thebonds at December 31, 2018, was $260 million.
Required:
1. & 2. Prepare the journal entry to recordTanner-UNFâs investment in the bonds on July 1, 2018 and intereston December 31, 2018, at the effective (market) rate.
3. Prepare any additional journal entry necessaryfor Tanner-UNF to report its investment in the December 31, 2018,balance sheet.
4. Suppose Moodyâs bond rating agency downgradedthe risk rating of the bonds motivating Tanner-UNF to sell theinvestment on January 2, 2019, for $240 million. Prepare thejournal entries to record the sale.
