"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. Prepare any additional journal entry necessary for Tanner-UNF to 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 $250 million. Prepare the journal entries necessary to record the sale, including updating the fair-value adjustment, recording any reclassification adjustment, and recording the sale."
1 answer:
Answer:
Explanation:
The investments, being recorded under the fair value method, the accounting for the held-to-maturity securities would be similar to the accounting for trading securities. In the balance sheet of Company T, the securities would be shown at the fair value, and the unrealized gains or losses would also be shown in the income statement in the corresponding period.
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Solution:
PV = FV x (App. B: 10%, 2 periods)
= $6,000 x 0.826 - $4,956
PV = FV x (App. B: 10%, 3 periods)
= $8,000 x 0.751 = $6,008
PV = FV x (App. B: 10%, 4 periods)
= $10,000 x 0.683 = $6,830
Net Value of Payments = ($4,956) + ($6,008) + $6,830 = ($4,134)