Exercise 12-1 Securities held-to-maturity; bond investment; effective interest, discount [LO12-1] Tanner-UNF Corporation acquired as a long-term...
Exercise 12-1 Securities held-to-maturity; bond investment; effective interest, discount [LO12-1]
Tanner-UNF Corporation acquired as a long-term investment $260
million of 6.0% 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 9% for bonds
of similar risk and maturity. Tanner-UNF paid $220.0 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 $230.0
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. 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 $210.0 million. Prepare the
journal entry to record the sale.
Homework Answers
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Exercise 12-1 Securities held-to-maturity; bond investment;
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Income statement: maturity: bond investment; effective interest, discount E12-1 Securities held-to-matur Tanner-UNF Corporation acqui 1, on...
Income statement: maturity: bond investment; effective interest, discount E12-1 Securities held-to-matur Tanner-UNF Corporation acqui 1, on July 1, 2021. Company me maturity. The market interest rat paid $200 million for the bond December 31. As a re "" acquired as a long-term investment $240 million of 6% bonds, dated July mpany management has the positive intent and ability to hold the bonds until rest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNE bonds. The company will...
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