Reference no: EM133122016

Question - Tanner-UNF Corporation acquired as a long-term investment $310 million of 6% bonds, dated July 1, on July 1, 2021. Company management has the positive intent and ability to hold the bonds until maturity, but when the bonds were acquired Tanner-UNF decided to elect the fair value option for accounting for its investment. The market interest rate {yield} was 9% for bonds of similar risk and maturity. Tanner-UNF paid $280 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, 2021, was $290 million.

Required -

1. How would this investment be classified on Tanner-UNF's balance sheet?

2. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2021, interest on December 31, 2021, at the effective [market] and fair value changes as of December 31, 2021.

3. At what amount will Tanner-UNF report its investment in the December 31, 2021, balance sheet?

4. Suppose Moody's bond rating agency downgraded the risk rating ofthe bonds motivating Tanner-UNF to sell the investment on January 2, 2022, for $270 million. Prepare the journal entries to record the sale.