Exercise 12-5 (Algo) Trading securities [LO12-1, 12-3] Tanner-UNF Corporation acquired as an investment $260 million of 8% bonds, dated July 1, on July 1, 2021. Company managemen holding the bonds in its trading portfolio. The market interest rate (yield) was 10% for bonds of similar risk and maturity. Tanner-UNE paid $220 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of chan market conditions, the fair value of the bonds at December 31, 2021, was $230 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, 202 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 $170 million. Prepare the journal entries required on the date of sale.
Exercise 12-5 (Algo) Trading securities [LO12-1, 12-3] Tanner-UNF Corporation acquired as an investment $260 million of 8% bonds, dated July 1, on July 1, 2021. Company managemen holding the bonds in its trading portfolio. The market interest rate (yield) was 10% for bonds of similar risk and maturity. Tanner-UNE paid $220 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of chan market conditions, the fair value of the bonds at December 31, 2021, was $230 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, 202 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 $170 million. Prepare the journal entries required on the date of sale.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable
Section: Chapter Questions
Problem 7P: Wilbury Corporation issued 1 million of 13.5% bonds for 985,071.68. The bonds are dated and issued...
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Please help me figure out how to calculate discount on bond investment.
Prepare the
Expert Solution
INTRODUCTION
BONDS ARE TYPICALLY ISSUED TO RAISE FUNDS FOR SPECIFIC PROJECTS . IN RETURN , THE BOND ISSUER PROMISES TO PAY BACK THE INVESTMENT , WITH INTEREST , OVER A CERTAIN PERIOD OF TIME .
CALCULATION OF DISCOUNT ON BOND INVESTMENT :
= INTEREST REVENUE - CASH
= (220 X 10% X 6/12 ) - (260 X 8% X6/12)
= 11 - 10.4
= 0.6
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