Question

Tanner-UNF Corporation acquired as a long-term investment $320 million of 4.0% bonds, dated July 1, on July 1, 2021. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 6% for bonds of similar risk and maturity. Tanner-UNF paid $290.0 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 $300.0 million.

Question:
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 $280.0 million. Prepare the journal entry to record the sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

Answer 1

Solution 1 & 2:
Journal Entries - Tanner UNF
Event	Date	Particulars	Debit (In Million)	Credit (In Million)
1	1-Jul-21	Investment in Bond Dr	$320.00
		To Cash		$290.00
		To Discount on bond investment		$30.00
		(Being investment in bond recorded)
2	31-Dec-21	Cash Dr ($320 * 4% * 6/12)	$6.40
		Discount on bond investment Dr	$2.30
		To Interest revenue ($290*6%*6/12)		$8.70
		(Being revenue recoginition for bond interest and discount amortized)

Solution 3:
Tanner UNF report its investment on 31.12.2021 balance sheet at amortized cost i.e. = $290 + $2.30 = $292.30 million

Solution 4:
Journal Entries - Tanner UNF Corportation
Event	Date	Particulars	Debit (In Million)	Credit (In Million)
1	2-Jan-22	No Journal Entry Required
2	2-Jan-22	Cash Dr	$280.00
		Discount on bond investment Dr	$27.70
		Loss on sale of investment Dr	$12.30
		To Investment in Bond		$320.00
		(To record sale of bonds)