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Item3
Item 3 10 points
Tanner-UNF Corporation acquired as a long-term investment $240
million of 6% bonds, dated July 1, on July 1, 2018. 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.
Company management has classified the bonds as available-for-sale
investments. As a result of changing market conditions, the fair
value of the bonds at December 31, 2018, was $210 million.
Required:
1. & 2. Prepare the journal entry to record
Tanner-UNF’s investment in the bonds on July 1, 2018 and interest
on December 31, 2018, at the effective (market) rate.
3. Prepare any additional journal entry necessary
for Tanner-UNF to report its investment in the December 31, 2018,
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, 2019, for $190 million. Prepare the
journal entries necessary to record the sale, including updating
the fair-value adjustment, recording any reclassification
adjustment, and recording the sale.
available for sale Need help with reclassification adjustment
Q | General Journal | Debit | Credit |
1 | Investment in bonds | $ 240.00 | |
Discount on bond investment | $ 40.00 | ||
Cash | $ 200.00 | ||
2 | Cash | $ 7.20 | |
Discount on bond investment | $ 0.80 | ||
Interest revenue | $ 8.00 | ||
3 | Fair value adjustment | $ 9.20 | |
Net unrealized holding gains and losses—I/S | $ 9.20 | ||
4 | Cash | $ 190.00 | |
Loss on Sale of Investments | $ 10.80 | ||
Discount on Bond Investments | $ 39.20 | ||
Investment in Bonds | $ 240.00 | ||
Net unrealized holding gains and losses—I/S | $ 9.20 | ||
Fair value adjustment | $ 9.20 |
Check my workCheck My Work button is now enabled Item3 Item 3 10 points Tanner-UNF Corporation...
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