Question

Tanner-UNF Corporation acquired as a long-term investment $280 million of 6% bonds, dated July 1, on July 1, 2018. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $240 million for the bonds. The company will receive interest semiannually on June 30 and December 31. Company management has classified the bonds as available-for-sale investments. As a result of changing market conditions, the fair value of the bonds at December 31, 2018, was $250 million.

Suppose Moody’s bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2019, for $230 million. Prepare the journal entries necessary to record the sale, including updating the fair-value adjustment, recording any reclassification adjustment, and recording the sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).)

1. Record the entry for fair-value adjustment, AFS investment.

Note: Enter debits before credits.

	Event General Journal Debit Credit 1 Unrealized holding loss—OCI Fair value adjustment

2. Record the entry for reclassification adjustment.

Note: Enter debits before credits.

	Event General Journal Debit Credit 2

Answer 1

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