Exam 1 TannerUF Corporation acquired as a long term investment $240 mln of 6% bo

Question

Exam 1 TannerUF Corporation acquired as a long term investment $240 mln of 6% bonds, dated July 1, on July t 2018. The market interest rate yield) was 8% for bonds or samlar risk and maturity TannerUNF paid $200 milion for the bonds. The company will receive interest semiannualily on June 30 and December 3t Company management is holding the bonds in its trading portfolio. As result of changing market condtions, the fair value of the bonds at December 31, 2018, was $210 miion Required 1.&2 Prepare the jourmal erery to record Tanner-UNFs invesment in the bonds on Juily 1 2018 and inberest on December 31, 2018, t sthe effective (market) ae 3. Prepare any additional journal entry necessary for Tannes-UNi to report its investment in the December 31, 2018, balance sheet 4. Suppose Moody's bond ratingagency downgraded the risk rng of the bonds motivating Tenner-UNF to sell the investment on January 2, 2019, for $190 milion Prepare the joumal endries to record the sale Complete this question by entering your answers in the tabs below Ree 1 and 2Rea Prepare the journal entbry to record Tanner-Un's investment in the bonds on July 1, 201B and interest on December 31, rst account field. Enter your answers in mitions rounded to 1 decmal place,(,5500,000 should be entered as S.5)) eg 4 Journal entry worksheet Recard Tanner-U's investment in the bonds on July .2018

Explanation / Answer

1 Investment in bonds 240        Discount on bond investment 40        Cash 200 2 Cash 7.2 =240*6%/2 Discount on bond investment 0.8        Interest revenue 8 =200*8%/2 3 Fair value adjustment 9.2 =210-(200+0.8)        Net unrealized holding gains and losses—I/S 9.2 4 Cash 190 Loss on sale of investments 10.8 Discount on bond investment 39.2 =40-0.8       Investment in bonds 240 Net unrealized holding gains and losses — I/S 9.2      Fair value adjustment 9.2

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