Question
In: Accounting
Tanner-UNF Corporation acquired as a long-term investment $240 million of 8% bonds, dated July 1, on...
Tanner-UNF Corporation acquired as a long-term investment $240
million of 8% bonds, dated July 1, on July 1, 2021. Company
management has classified the bonds as an available-for-sale
investment. The market interest rate (yield) was 10% 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, 2021, was $210
million.
Required:
1. & 2. Prepare the journal entry to record
Tanner-UNF’s investment in the bonds on July 1, 2021 and interest
on December 31, 2021, at the effective (market) rate.
3. Prepare any additional journal entry necessary
for Tanner-UNF to report its investment in the December 31, 2021,
balance sheet.
4. Suppose Moody’s bond rating agency downgraded
the risk rating of the bonds motivating Tanner-UNF to sell the
investment on January 2, 2022, for $180 million. Prepare the
journal entries necessary to record the sale, including updating
the fair-value adjustment, recording any reclassification
adjustment, and recording the sale.
Solutions
ekkarill92 answered 2 years agoRelated Solutions
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million of 6% bonds, dated July 1, on July 1, 2021. Company
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until maturity. The market interest rate (yield) was 8% for bonds
of similar risk and maturity. Tanner-UNF paid $200 million for the
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receive interest semiannually on June 30 and December 31. As a
result of changing market conditions, the fair value of the bonds
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million of 8% bonds, dated July 1, on July 1, 2018. The market
interest rate (yield) was 10% for bonds of similar risk and
maturity. Tanner-UNF paid $210 million for the bonds. The company
will receive interest semiannually on June 30 and December 31.
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will receive interest semiannually on June 30 and December 31.
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