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Focus on Trading Securities Tanner-UNF Corporation acquired as a long-term investment $240 million of 7% bonds, dated...

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Accounting

Focus on Trading Securities

Tanner-UNF Corporation acquired as a long-term investment $240million of 7% bonds, dated July 1, on July 1, 2018. The marketinterest rate (yield) was 9% 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.

1. & 2. Prepare the journal entry to recordTanner-UNF’s 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 Moody’s bond rating agency downgradedthe risk rating of the bonds motivating Tanner-UNF to sell theinvestment on January 2, 2019, for $190 million. Prepare thejournal entries necessary to record the sale

Answer & Explanation Solved by verified expert
3.6 Ratings (319 Votes)
1 prepare the following journal entries to report investment in the Dec 312018 balance sheet as provided below Date Accounts and Title DR in million CR in million 01Jul18 Investments available for sale ac Dr 240 Cr discount on investments    See Answer
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