Question

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 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 $210 million. Required:

Answer 1

Part 1
Date	Particulars	Debit	Credit
Dec 31 2021	Cash	7.2		(240 x 6% x 1/2)
	Discount on bonds	0.8
	Interest Revenue		8	(200 x 8% x 1/2)
	( Being interest recognised)
Dec 31 2021	Fair value Adjustment	7.2
	Unrealised holding gain		7.2
	( being unrealised gain recognised)
Part 2
Jan 2 2022	Cash	190
	Loss on sale	10.8		(210-7.2-190)
	Discount on bonds	39.2		(40-.8)
	Investment in bonds		240
	( Being sale of bond recorded)