Reference no: EM132508941
Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, 2018. 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, 2018, was $210 million.
Required:
Question 1. Prepare the journal entry to record Tanner-UNF investment in the bonds on July 1, 2018.
Question 2. Prepare the journal entries by Tanner-UNF to record interest on December 31, 2018 at the effective (market) rate.
Question 3. At what amount will Tanner-UNF report its investment in the December 31, 2018, balance sheet? Why?
Question 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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