Question

Tanner-UNF Corporation acquired as a long-term investment $300 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 $250 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 cond itions, the fair value of the bonds at December 31, 2018, was $260 million. 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. Prepare any additional journal entry necessary for Tanner-UNF to report its investment in the December 31, 2018, balance sheet 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 $240 million. Prepare the journal entries necessary to record the sale, including updating the fair-value adjustment, recording any reclassification adjustment, and recording the sale. s Complete this question by entering your answers in the tabs below. Req 4 Req 1 and 2 Req 3 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 $240 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).) Show less & View transaction list

Answer 1

1. & 2.	Date	Account titles and explanation					Debit	Credit
	July 1.	Investment in bonds					300
		Discount on bond investment			(Plug)			50
		Cash						250
		(Acquired long-term investment)
	Dec 31.	Cash			(300*6%*1/2)		9
		Discount on bond investment			(Plug)		1
		Interest revenue			(250*8%*1/2)			10
		(Interest earned for the half year)
3	Date	Account titles and explanation					Debit	Credit
	Dec 31.	Fair value adjustment				(Note:1)	9
		Unrealized holding gain						9
		(Increase in value recorded)
	Note:1
					$	$
	Fair market value					260
	Less: Carrying value of investment
	Book value				300
	Less: Discount		(50-1)		49	251
	Increase in value					9
4	Date	Account titles and explanation					Debit	Credit
	Jan 2.	Unrealized holding loss-NI				(Note:2)	20
		Fair value adjustment						20
		(Decrease in value recorded)
	Jan 2.	Cash					240
		Fair value adjustment			(Plug)		11
		Discount on bond investment					49
		Investment in bonds						300
		(Investment sold)
	Note:2
					$
	Sales value				240
	Less: Carrying value of investment				251
	Decrease in value				-11
	Current balance in fair value adjustment=$ 9 (Increase)
	This has to make as $ 11 decrease
	Hence,loss to be recognized=11+9=$ 20