Answer:
1. July 1, investment in UNF bonds
Dr Investment in bonds HTM 300,000,000
Cr Cash 250,000,000
Cr Discount on bonds 50,000,000
December 31, interest revenue from investment in bonds
Dr Cash 9,000,000
Dr Discount on bonds 1,000,000
Cr Interest revenue 10.000,000
Discount on bonds = ($250,000,000 x 4% x 1/2) - ($300,000,000 x 3% x 1/2) = $1,000,000
2. Prepare any additional journal entry necessary for Tanner-UNF to report its investment in the December 31, 2018, balance sheet.
Investment in bonds HTM = $300,000,000 (face value) - $49,000,000 (discount on bonds) = $251,000,000
Changes in the market value of bonds held to maturity are not considered by the company.
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 $310.0 million. Prepare the journal entry to record the sale.
Dr Cash 310,000,000
Dr Discount on bonds 49,000,000
Cr Investment in bonds HTM 300,000,000
Cr Gain on investment in bonds HTM 59,000,000
