Tanner-UNF Corporation acquired as a long-term investment $200 million of 6% bon

Question

Tanner-UNF Corporation acquired as a long-term investment $200 million of 6% bonds, dated July 1, on July 1, 2016. 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 8% for bonds of similar risk and maturity. Tanner-UNF paid $170 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 $180 million.

At what amount will Tanner-UNF report its investment in the December 31, 2016, balance sheet? (Enter your answers in millions, (i.e., 10,000,000 should be entered as 10).)

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 $150 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 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).)

Tanner-UNF Corporation acquired as a long-term investment $200 million of 6% bonds, dated July 1, on July 1, 2016. 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 8% for bonds of similar risk and maturity. Tanner-UNF paid $170 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 $180 million.

At what amount will Tanner-UNF report its investment in the December 31, 2016, balance sheet? (Enter your answers in millions, (i.e., 10,000,000 should be entered as 10).)

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 $150 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 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).)

Explanation / Answer

5.At Carrying Value of 171,600 (200,000 - 30,000 + 1,600)

DR Cash 150,000

DR Discount 28,400

Loss on sale 21,600
CR Investment 200,000

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