Question

Exercise 12-10 (Algo) Available-for-sale securities [LO12-1, 12-4) Tanner-UNF Corporation acquired as a long-term investment $260 million of 7% bonds, dated July 1, on July 1, 2021 Company management has classified the bonds as an available for sale investment. The market interest rate yield) was 9% for bonds of similar risk and maturity. Tanner-UNF paid $220 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 $230 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. 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 $200 million. Prepare the journal entries necessary to record the sale, including updating the fair-value adjustment recording any reclassification adjustment, and recording the sale. Complete this question by entering your answers in the tabs below.

Answer 1

date	general journal	debit	credit
july 01 2021	available for sale investment cash (aquired 7% bonds for 220m)	220m	220m
dec 31 2021	cash interest revenue (semi anual interest received on bonds 7%)	7.7m	7.7m
dec 31 2021	available for sale investment other comprehensive income (change in fair value of bond to record in other comprehensive income)	10m	10m
jan 2 2022	other comprehensive income available for sale investment (change in fair value bond to record in other comprehensive income)	30	30
jan 2 2022	cash available for sale of investment (sale of available for sale investment)	200m	200m

interest calculation

220*7%*6/12=7.7 m