Prepare the journal entry to record Tanner-UNFs investment

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Problem - Tanner-UNF Corporation acquired as a long-term investment $260 million of 7.0% 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 9% for bonds of similar risk and maturity. Tanner-UNF paid $230.0 million for the bonds. The company will receive interest semi-annually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2016 was $240.0 million.

Required -

1. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2016 and interest on December 31, 2016, at the effective (market) rate.

2. At what amount will Tanner-UNF report its investment in the December 31, 2016, balance sheet?

3. 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 $220.0 million. Prepare the journal entry to record the sale.

Reference no: EM133032431

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