Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2016. Company management has the positive intent and ability to hold the bonds until maturity. 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, 2016 was $210 million. Required: 1. Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2016. 2. Prepare the journal entry by Tanner-UNF to record interest on December 31, 2016, at the effective (market) rate. 3. At what amount will Tanner-UNF report its investment in the December 31, 2016, balance sheet? Why? 4. Suppose Moody’s bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2017, for $190 million. Prepare the journal entry to record the sale.

Question
Asked Jan 17, 2020
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Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2016. Company management has the positive intent and ability to hold the bonds until maturity. 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, 2016 was $210 million. Required: 1. Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2016. 2. Prepare the journal entry by Tanner-UNF to record interest on December 31, 2016, at the effective (market) rate. 3. At what amount will Tanner-UNF report its investment in the December 31, 2016, balance sheet? Why? 4. Suppose Moody’s bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2017, for $190 million. Prepare the journal entry to record the sale.

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Expert Answer

Step 1

Accounting homework question answer, step 1, image 1

 

Step 2

1.

Prepare journal entry for purchase of $240,000,000 of 6% bonds for $200,000,000.

Accounting homework question answer, step 2, image 1
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Step 3

2.

Prepare journal entry for semiannual i...

Accounting homework question answer, step 3, image 1
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