Question

Tanner-UNF Corporation acquired as a long-term investment $200 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 8% for bonds of similar risk and maturity. Tanner-UNF paid $170.0 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 $180.0 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 $150.0 million. Prepare the journal entry to record the sale. X Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Req 1 and 2 Reg 3 Reg 4 At what amount will Tanner-UNF report its investment in the December 31, 2021, balance sheet? (Enter your answer in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).) Show less Investment $ 170.0x million < Req 1 and 2 Req 4 >

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Answer 1

1 & 2:

Journal Entries - Tanner - UNF Corporation
Event	Date	Particulars	Debit (In Million)	Credit (In Million)
1	01-Jul-21	Investment in Bond Dr	$200.00
		To Cash		$170.00
		To Discount on bond investment		$30.00
		(Being investment in bond recorded)
2	31-Dec-21	Cash Dr ($200 * 6% * 6/12)	$6.00
		Discount on bond investment Dr	$0.80
		To Interest revenue ($170*8%*6/12)		$6.80
		(Being revenue recoginition for bond interest and discount amortized)

3.

Investment = $170 + $0.80 = $170.8 million

4.

Journal Entries - Tanner UNF Corportation
Event	Date	Particulars	Debit (In Million)	Credit (In Million)
1	02-Jan-22	Cash Dr	$150.00
		Discount on bond investment Dr ($30-$0.80)	$29.20
		Loss on sale of investment Dr	$20.80
		To Investment in Bond		$200.00
		(To record sale of investment)