Tanner-UNF Corporation acquired as an investment $250 million of 6% bonds, dated July 1, on...
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Tanner-UNF Corporation acquired as an investment $250 million of 6% bonds, dated July 1, on July 1, 2024. Company management is holding the bonds in its trading portfolio. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2024, was $210 million.
Required:
1. & 2. Prepare the journal entry to record Tanner-UNFs investment in the bonds on July 1, 2024 and interest on December 31, 2024, at the effective (market) rate.
3. Prepare any additional journal entry necessary for Tanner-UNF to report its investment in the December 31, 2024, balance sheet.
4. Suppose Moodys bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2025, for $190 million. Prepare the journal entries required on the date of sale.
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