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
