Question

Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% 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 8% for bonds of similar risk and maturity. Tanner-UNF paid $200 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 $210 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 $190 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. Reg 1 and 2 Reg 3 Reg 4 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. (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, (.e., 5,500,000 should be entered as 5.5).) View transaction ist Journal entry worksheet < 1 2. > Record Tanner-UNF's investment in the bonds on July 1, 2021.

Answer 1

Journal entries

No.	Date	General Journal	Debit	Ctedit
1	July 1,2021	Investment in bonds a/c	240
		To Discount on Bonds-investment a/c		40
		To Cash a/c		200
		[Being to record the investment in bonds]
2.	December 31,2021	Cash a/c {240*6%*(1/2)}	7.2
		Discount on bonds a/c	2.8
		To Interest revenue a/c {200*10%*(1/2)}		10
		[Being to record the interest revenue]
3.	December 31,2021	Fair value adjustment a/c	7.2
		To Unrealized holding gain a/c		7.2
		[Being
		[Being to record fair value adjustment]
4.	January 2,2022	Cash a/c	190
		Loss on sale of investment a/c {240-190-37.2}	12.8
		Discount on bonds a/c {40-2.8}	37.2
		To Investment in bonds		240
		[Being to record the sale of bonds]
5.	January 2,2022	unrealized loss a/c {7.2+12.8}	20
		To fair value adjustment a/c		20
		[Being to record fair value adjustment]

Working notes[WN]:

Particulars	Amount($)	Amount($)
Fair market value		210
Book value	240
Less:Discount [40-2.8]	(37.2)	202.8
Increase in value		7.2

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