Question

Tanner-UNF Corporation acquired as a long-term investment $290 million of 6.0% 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 7% for bonds of similar risk and maturity. Tanner-UNF paid $260.0 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 $270.0 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. At what amount will Tanner-UNF 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 $250.0 million. Prepare the journal entry to record the sale.

Tanner-UNF Corporation acquired as an investment $260 million of 5% bonds, dated July 1, on July 1, 2021. Company management is holding the bonds in its trading portfolio. The market interest rate (yield) was 7% 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 $215 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 $190 million. Prepare the journal entries required on the date of sale.

Answer 1

No.	Date	Account Titles and Explanation	Debit	Credit
1	July 1, 2021	Investment in bonds	290.0
		Discount on bond investment		30.0
		Cash		260.0
		(To record the investment in bonds)
2	December 31, 2021	Cash ($290 x 6% x 6/12)	8.7
		Discount on bond investment	0.4
		Interest revenue ($260 x 7% x 6/12)		9.1
		(To record interest)
3	December 31, 2021	Fair value adjustment [$270 - ($260 + $0.4)]	9.6
		Unrealized holding gain-NI		9.6
		(To record trading investment at fair value)
4	January 2, 2022	Unrealized holding loss-NI	20.0
		Fair value adjustment ($270 - $250)		20.0
		(To record trading investment at fair value)
		Cash	250.0
		Discount on bond investment ($30.0 - $0.4)	29.6
		Fair value adjustment ($20.0 - $9.6)	10.4
		Investment in bonds		290.0
		(To record the sale of investment)

Answer 2

part 3 its 260+ 0.4= 260.4

part 4) dr. cash                                           250

            dr. discount on bad investment      29.6 (30.0-0.4)

             dr. loss on investment (NI)            10.4 (290-250-29.6)

                 cr. investment in bonds                                       290