Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July1, 2018. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200million for the bonds. The company will receive interest semiannually on June 30 and December 31. Companymanagement is holding the bonds in its trading portfolio. As a result of changing market conditions, the fair valueof the bonds at December 31, 2018, was $210 million.Required:1. Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2018.2. Prepare the journal entries by Tanner-UNF to record 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.4. Suppose Moody’s bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sellthe investment on January 2, 2019, for $190 million. Prepare the journal entry to record the sale.
Tanner-UNF Corporation acquired as a long-term investment $240 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 $200
million for the bonds. The company will receive interest semiannually on June 30 and December 31. Company
management is holding the bonds in its trading portfolio. As a result of changing market conditions, the fair value
of the bonds at December 31, 2018, was $210 million.
Required:
1. Prepare the
2. Prepare the journal entries by Tanner-UNF to record 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.
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 $190 million. Prepare the journal entry to record the sale.
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