Question

SUBM 4 Check my work Tanner-UNF Corporation acquired as a long-term investment $190 million of 8.0 % 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 10 % for bonds of similar risk and maturity. Tanner-UNF paid $160.0 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 $170.0 million. 10 points Required: 1. & 2. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2018 and interest on December 31, 2018, at the effective (market) rate. 3. At what amount will Tanner-UNF report its investment in the December 31, 2018, 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, 2019, for $140.0 million. Prepare the journal entry to record the sale. eBook Hint Complete this question by entering your answers in the tabs below. Print Req 1 and 2 Req 3 Req 4 Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2018 and interest on December 31, 2018, at the effective (market) rate. (If no entry is required for a transaction/event, select "No journal entry required" in the first account fleld. Enter your answers in millions rounded to 2 decimal places, (i.e., 5,500,000 should be entered as 5.50).) References View transaction list Journal entry worksheet <K 2 Record Tanner-UNF's investment in the bonds on July 1, 2018.

Answer 1

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Naming convention is not available, can be slightly different: Solution: Treated as Held to Maturity Securities: Journal entries Account title and explaination Debit Credit Date Investment in Bonds Discount on bonds Investment (190-160) $ 190.00 1) Jul.01 $ 30.00 2018 $ 160.00 Cash (To record the investment in bonds) Cash (190*4% ) Discount Interest Revenue (140*4%) (To record the interest revenue) 2) Dec.31 7.60 on Bonds Investment (plug) $ 2018 0.40 8.00 160.40 (190) (30 - 0.40) at book value, because bonds are being treated as held for maturity. 3) There is nothing metioned about treating it as trading securities during 2018. Account title and explaination Debit 4) Credit Date Jan.02 Cash S 140.00 Discount on bonds Investment (30-0.40) Loss on Sale of Investment (plug) Investment in Bonds 2019 29.60 $ 20.40 $ 190.00 (To record the sale of investment)