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CHAPTER 12 (4.) Tanner-UNF Corporation acquired as a long-term investment $350 million of 7.0% bonds, dated...

CHAPTER 12 (4.)

Tanner-UNF Corporation acquired as a long-term investment $350 million of 7.0% bonds, dated July 1, on July 1, 2018. 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 $320.0 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, 2018, was $330.0 million.

Required:
3. At what amount will Tanner-UNF report its investment in the December 31, 2018, balance sheet?

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Answer #1

As bonds are classified under held to maturity therefore same will be reported in balance sheet at its amortized cost i.e. = $320 + $0.55 = $320.55

Working Notes:

($320*8%*6/12)-($350 * 7% * 6/12) = 0.55

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