Question

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Exercise 12-1 (Algo) Securltles held-to-maturlty; bond Investment; effective Interest, discount [LO12-1] Tanner-UNF Corporation acquired as a long-term investment $270 million of 8.0% 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 10% for bonds of similar risk and maturity. Tanner-UNF paid $240.0 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 $250.0 million. Requlred: 1. & 2. Prepare the joumal 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 $230.0 million. Prepare the journal entry to record the sale. Complete this question by entering your answers in the tabs below. Reg 1 and 2 Req 3 Reg 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 Record Tanner-UNF's investment in the bonds on July 1, 2021. Note: Enter debits before credits. General Journal Date Debit Credit July 01, 2021 Record entry Clear entry View general journal < Req 1 and 2 Req 3 >

Answer 1

Solution 1&2:

Journal Entries - Tanner UNF
Event	Date	Particulars	Debit (In Million)	Credit (In Million)
1	1-Jul-21	Investment in Bond Dr	$270.00
		To Cash		$240.00
		To Discount on bond investment		$30.00
		(Being investment in bond recorded)
2	31-Dec-21	Cash Dr ($270 * 8% * 6/12)	$10.80
		Discount on bond investment Dr	$1.20
		To Interest revenue ($240*10%*6/12)		$12.00
		(Being revenue recognition for bond interest and discount amortized)

Solution 3:

Tanner UNF will report its investment on 31.12.2021 balance sheet at amortized cost i.e. = $240 + $1.20 = $241.20 million

Solution 4:

Journal Entries - Tanner UNF Corportation
Event	Date	Particulars	Debit (In Million)	Credit (In Million)
1	2-Jan-22	Cash Dr	$230.00
		Discount on bond investment Dr	$28.80
		Loss on sale of investment Dr	$11.20
		To Investment in Bond		$270.00
		(To record sale of bonds)