Tanner-UNF Corporation acquired as a long-term investment $300 million of 4.0% b
ID: 2330990 • Letter: T
Question
Tanner-UNF Corporation acquired as a long-term investment $300 million of 4.0% bonds, dated July 1, on July 1, 2018. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 6% for bonds of similar risk and maturity. Tanner-UNF paid $270.0 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 $280.0 million Requirec: 1. & 2. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2018 and interest on December 31, 2018, at the effective (market) rate 3. At what amount will Tanner-UNF 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 $260.0 million. Prepare the journal entry to record the sale Complete this question by entering your answers in the tabs belovw Req 1 and 2 Req 3 Req 4 Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2018 and interest on December 31, 2018, at the effective (market) rate. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5.) View transaction list Journal entry worksheet 2 Record Tanner-UNF's investment in the bonds on July 1, 2018 Note: Enter debits before credits. Event General Journal Debit Credit K Pre 13 of 17 Next>Explanation / Answer
Answers
Date
General Journal
Debit (million)
Credit (million)
01-Jul-18
Investments in Bonds
$ 300.00
Cash
$ 270.00
Discount on Bonds
$ 30.00
(amount invested in Bonds)
Date
General Journal
Debit (million)
Credit (million)
31-Dec-18
Cash
$ 6.00 [$ 300 x 4% x 6/12]
Discount on Bonds
$ 2.10
Interest Revenue
$ 8.10 [$ 270 x 6% x 6/12]
(Interest received)
Amount at which Investment in Bonds to be reported:
Investment in Bonds - face Value
$ 300.00
Initial Discount on Purchase
$ 30.00
Discount amortised till 31 Dec 2018
$ (2.10)
Unamortised Discount on Bonds
$ 27.90
Investment in Bonds to be reported in Balance Sheet on 31 Dec, 2018 = ANSWER VALUE
$ 272.10
Date
General Journal
Debit (million)
Credit (million)
02-Jan-19
Cash [amount received]
$ 260.00
Discount on Bonds [30 – 2.1: Calculated in Req 3]
$ 27.90
Loss on Sale of Investments/Bonds [Balancing figure]
$ 12.10
Investment in Bonds [Face value]
$ 300.00
(Bonds Sold for cash)
Date
General Journal
Debit (million)
Credit (million)
01-Jul-18
Investments in Bonds
$ 300.00
Cash
$ 270.00
Discount on Bonds
$ 30.00
(amount invested in Bonds)
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