Exercise 12-10 Available-for-sale securities [L012-1, 12-4] Tanner-UNF Corporati
ID: 2532534 • Letter: E
Question
Exercise 12-10 Available-for-sale securities [L012-1, 12-4] Tanner-UNF Corporation acquired as a long-term investment $240 million of 8% bonds, dated July 1, on July 1, 2018, The market interest rate (yield) was 10% for bonds of similar risk and maturity. Tanner-UNF paid $200 million for the bonds. The company will receive interest semiannually on June 30 and December 31. Company management has classified the bonds as available-for-sale investments. As a result of changing market conditions, the fair value of the bonds at December 31, 2018, was $210 million Required: 1. & 2. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2018 and interest on December 31, 2018, at the effective (market) rate 3. Prepare any additional journal entry necessary for Tanner-UNF to report its investment in the December 31, 2018, 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, 2019, for $180 million. Prepare the journal entries necessary to record the sale, including updating the fair-value adjustment, recording any reclassification adjustment, and recording the sale. Complete this question by entering your answers in the tabs below. Req 1 and 2 Req 3 Req 4 Prepare any additional journal entry necessary for Tanner-UNF to report its investment in the December 31, 2018, balance sheet. (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 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).)Explanation / Answer
1 & 2) Journal entries to record investment in the bonds on July 1, 2018 and interest on December 31, 2018, at the effective (market) rate is shown as follows:-
Journal Entries (Amount in million $)
3) Journal entry to report its investment in the December 31, 2018, balance sheet.
Journal Entries (Amount in million $)
4) Journal Entries to record the sale (Amount in million $)
Date General Journal Debit Credit July 1, 2018 Investment in Bonds 240 Discount on bond investment (240-200) 40 Cash 200 (To record the investment in bonds) Dec. 31, 2018 Cash (240 million*8%*6/12) 9.6 Discount on bond investment (10-9.6) 0.4 Interest Revenue (200 million*10%*6/12) 10 (To record the interest revenue)Related Questions
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