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, 2016. 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, 2016 was $290.0 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).)

Explanation / Answer

Date Account Debit Credit July.1 Investment in bonds 310 Cash 280 Discount on bonds 30 [Investment in bonds] Dec.31 Cash 9.3 Discount on bonds 3.3 Interest revenue 12.6 [Interest revenue for 6 months] Interest revenue 12.6 Less Interest received 9.3 Amortisation of bonds 3.3

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