Exercise 12-1 Securities held-to-maturity; bond investment; effective interest [
ID: 2457194 • Letter: E
Question
Exercise 12-1 Securities held-to-maturity; bond investment; effective interest [LO12-1] Tanner-UNF Corporation acquired as a long-term investment $300 million of 4.0% 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 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, 2016 was $280.0 million. Required: 1. & 2. 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. (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 2 decimal places (i.e., 5,500,000 should be entered as 5.50).) 3. At what amount will Tanner-UNF report its investment in the December 31, 2016, balance sheet? (Enter your answer in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).) 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 $260.0 million. Prepare the journal entry to record the sale. (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 2 decimal places (i.e., 5,500,000 should be entered as 5.50).)
Explanation / Answer
3.At $280.0 million will Tanner-UNF report its investment in the December 31, 2016, balance sheet.
1-2 (In Million) Date Particulars Debit Amount($) Credit Amount($) 01/07/2016 6% Bond 270 To Bank 270 (Being bond Purchase) 31/12/2016 Interest Receivable 9 To Interest A/c 9 (Being Interest Booked) 31/12/2016 Bank A/c 9 To Interest Receivable A/c 9 (Being Interest Received) 31/12/2016 6% Bond A/c 10 To Investment Revaluatio Reserve A/c 10 (Being Investment Revalued)Related Questions
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