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Tanner-UNF Corporation acquired as a long-term investment $300 million of 10% bonds, dated July 1, on...

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Accounting

Tanner-UNF Corporation acquired as a long-term investment $300million of 10% bonds, dated July 1, on July 1, 2018. The marketinterest rate (yield) was 7% for bonds of similar risk andmaturity. Tanner-UNF paid $364 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 $375 million.

Required:

1. & 2. Prepare the journal entry to record Tanner-UNF’sinvestment in the bonds on July 1, 2018 and interest on December31, 2018, at the effective (market) rate.

3. Prepare any additional journal entry necessary for Tanner-UNFto report its investment in the December 31, 2018, balancesheet.

4. Suppose Moody’s bond rating agency downgraded the risk ratingof the bonds motivating TannerUNF to sell the investment on January2, 2019, for $360 million. Prepare the journal entries to recordthe sale.

Answer & Explanation Solved by verified expert
4.4 Ratings (974 Votes)
Solution 12 Journal Entries Tanner UNF Corporation Event Date Particulars Debit In Million Credit In Million 1 1Jul18 Investment in Bond Dr 30000 Premium on bond investment Dr 6400 To Cash 36400 Being    See Answer
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