Question

This is a variation of E 12-1 modified to focus on trading securities.) Tanner-UNF Corporation acquired as an investment $240 million of 6% bonds, dated July 1, on July 1, 2021. Company management is holding the bonds in its trading portfolio. 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 inter- est 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 $210 million. Required: 1. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2021. 2. Prepare the journal entry by Tanner-UNF to record 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

Explanation - Analysis the problem
Tanner UNF Corporation Acquired Investment $ 240 Mio with 6% Bond Interest
Company management is holding the bonds in its trading portfolio
The market Interest ( Yield) was 8%
Tanner UNF paid $ 200 Mio for the Bonds
The company will receive Interest received semiannually
June 30th and Dec 31st
Fair valueof the bond as on 31st Dec 2021 - $ 210 Mio

Journal Entry
	Details	Debit ($ Mio	Credit ($ Mio)
1st July'2021	Investment in Bond	240
	Cash		200
	Discount on Bond Investment		40
	( accounted Bond Investment Purchase)
31st Dec'2021	Cash ( $240 *6%*6/12)	7.2
	Discount on Bond Investment	0.8
	Interest revenue ( $200 *8%*6/12)		8
	( Interest earned on Bond)
Part 3	Tanner UNF to report its Investment
	in the dec 31,2021
	Unamortized Bond
	Discount on Bond Investment $	40
	Discount on Bond Investment - Amortized $	0.8
	Net Balance of Bond Investment $-B	39.2
	Face Value $ -A	240
	Tanner UNF to report its Investment
	( face Value - Unamortized Bond Value)-(A-B) $	200.8
Part 4	Last part Moody's bond rating
	agency downgrade the risk rating
	Sell the Investment Jan 2,2022-$ 190 Mio
		Debit ($ Mio	Credit ($ Mio)
02-Jan-22	cash	190
	Discount on Bond Investment - Amortized - as calculated above	39.2
	Loss on Sale of Bond ( Balancing Number)	10.8
	Investment in Bond		240
	( Accounted sale of Bond Investment )