Tanner-UNF Corporation acquired as a long-term investment $310 million of 6.0% b

Question

Tanner-UNF Corporation acquired as a long-term investment $310 million of 6.0% 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 9% for bonds of similar risk and maturity. Tanner-UNF paid $280.0 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 $290.0 million Required: 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 $270.0 million. Prepare the journal entry to record the sale Answer is complete but not entirely correct Complete this question by entering your answers in the tabs below 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).) No Event General Journal Debit Credit Investment in bonds Discount on bond investment 30.0 Cash 280.0 2 2 Cash 9.3 Discount on bond investment Interest revenue 11.2 Req 1 and 2 Req 3

Explanation / Answer

Solution 1 & 2:

Solution 3:

Investment to be reported at 31 December 2018 balance sheet = $310 - $26.70 = $283.30

Solution 4:

Journal Entries - Tanner UNF Corportation Event Date Particulars Debit (In Million) Credit (In Million) 1 1-Jul-18 Investment in Bond Dr $310.00          To Discount on bond investment $30.00          To Cash $280.00 (Being investment in bond recorded) 2 31-Dec-18 Cash Dr (310*6%*6/12) $9.30 Discount on bond investment Dr $3.30          To Interest revenue ($280*9%*6/12) $12.60 (Cash interest received and discount amortized)

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