Question

Tanner-UNF Corporation acquired as a long-term investment $200 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 8% for bonds of similar risk and maturity. Tanner-UNF paid $170.0 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 $180.0 million. points 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 $150.0 million. Prepare the journal entry to record the sale.

Answer 1

Answer 1 & 2			(In Million)
No	Date	General Journal	Debit	Credit
1	01-Jul-21	Investment in Bond	$200.00
		To Cash		$170.00
		To Discount on bond investment		$30.00
2	31-Dec-21	Cash Dr ($200 x 6/12 x 6%)	$6.00
		Discount on bond investment	$0.80
		To Interest revenue ($170 x 6/12 x 8%)		$6.80
Answer 3
Tanner-UNF Corporation will report its investment on Dec 31, 2018 balance sheet at $170 million + $0.80 million = $170.80 million
Answer 4			(In Million)
No	Date	General Journal	Debit	Credit
1	02-Jan-22	Cash	$150.00
		Discount on bond investment	$29.20
		Loss on sale of investment	$20.80
		To Investment in Bond		$200.00