Question

Tanner-UNF Corporation acquired as a long-term investment $260 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 9% for bonds of similar risk and maturity. Tanner-UNF paid $220.0 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 $230.0 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 $210.0 million. Prepare the journal entry to record the sale. Complete this question by entering your answers in the tabs below. Req 1 and 2 Req3 Req 4 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. (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).) View transaction list Journal entry worksheet < | 1 | 2 Record Tanner-UNF's investment in the bonds on July 1, 2021. Note: Enter debits before credits.

Answer 1

Tanner UNF (in million $) Journal Enteries Date Particulars 1.7.2021 Investment in Bonds a/c Dr. To Discount on Bond Investment To Cash (to record Tanner-UNF's investment inthe bonds) Debit in $ Credit in $ 260 40 220 7.8 31.12.2021 Cash (3% x 260) a/c Dr. Discount on Bonds a/c Dr. To Interest Revenue (4.5% x 220) (to record interest) 9.9 230 Fair market value Book value Less: Discount (40.0 -2.1) Increase in value 260 37.9 222.1 7.9 31.12.2021 Fair value adjustment a/c Dr. To Unrealized holding gain (1/) (to report its investment) Fair market value Book value Decrease in value 210 -222.1 -12.1 Dr. Unrealized holding loss (1/s) a/c To Fair value adjustment 20 Fair value adj. 7.9 20 12.1 210 Cash a/c Dr. Fair value adjustment a/c Dr. Discount on bond investment a/c Dr. To Investment in bonds (to record the sale) 37.9 260