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aksik [14]
3 years ago
6

Tanner-UNF Corporation acquired as a long-term investment $200 million of 6.0% bonds, dated July 1, on July 1, 2021. Company man

agement has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $170.0 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, 2021, was $180.0 million. Required: 1. & 2. Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2021 and interest on December 31, 2021, at the effective (market) rate. 3. At what amount will Tanner-UNF report its investment in the December 31, 2021, 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, 2022, for $150.0 million. Prepare the journal entry to record the sale.
Business
1 answer:
vivado [14]3 years ago
3 0

Answer and Explanation:

The journal entries are shown below:

On 1 Jul 2021

1.Investment in Bond $200.00  

           To Cash  $170.00

         To Discount on bond investment  $30.00

(Being the investment in the bonds is recorded)

2. On 31-Dec-21

Cash Dr ($200 × 6÷12 × 6%) $6.00  

Discount on bond investment $0.80  

          To Interest revenue ($170 × 6 ÷ 12 × 8%)  $6.80

(Being the interest is recorded)

3. On 02-Jan-22

Cash $150.00  

Discount on bond investment $29.20 ($200 - $170 - $0.80)  

Loss on sale of investment $20.80  

            To Investment in Bond  $200.00

(Being the sale is recorded)

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