Question

Tanner-UNF Corporation acquired as a long-term investment $330 million of 5.0% 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 6% for bonds of similar risk and maturity. Tanner-UNF paid $300.0 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 $310.0 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 $290.0 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 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).) Investment $ 0.1 million

Answer 1

1&2 Preparation of Journal Entries for bonds on July & December Si no Date Account titles and explanation 1 Jul-01 Investment in Bond To Cash To Discount on bond investment (Being investment in bond recorded) In Millions Debit Credit $330.00 $ 300.00 $ 30.00 2 ATA $ $ 8.25 0.75 Dec-31 Cash = 330*5%*6/12 Discount on bond investment To Interest revenue = 300*6%*6/12 (Being recoginition for bond interest and discount) $ 9.00 3 Investment to be reported = $300 + $0.75 = $300.75 millions 4 Preparation of Journal Entries Si no Date Account titles and explanation 1 Jan-02 Cash Dr Discount on bond investment Loss on sale of investment To Investment in Bond (To record sale of investment) In Millions Debit Credit $290.00 $ 29.25 $ 10.75 $330.00 * Kindly Comment down for any clarifications/ queries and please upvote.