e Buit Problems0 Tanner-UNF Corporation acquired as a long-term investment $290

ID: 2553948 • Letter: E

Question

e Buit Problems0 Tanner-UNF Corporation acquired as a long-term investment $290 million of 8% bonds, dated July t on July 2018. The market interest rate yield was 10% for bonds of similar risk and maturity Tanner-UNF paid $260 milion 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 $270 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,a the efective (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 $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. Complete this question by entering your answers in the tabs below Req 1 and 2 Req 3 Req 4 Prepare the yoamal entry to record Tanner-UNF's investment in the bonds on July 1, 2018 and interest on December 3 i 2018, at the effective (market) rate. (If no entry is required for a transaction/event, select "No joumal entry required first account field. Enter your answers in millions rounded to 1 decimal place, (e, 5,500,000 should h be entered as 5.5).) View journal entry worksheet n bonds 30.0 260.0 MacBook Air 3 4 5 8

Explanation / Answer

Solution:-

1 July 2018:-

Available for sale securities Dr 290

To Discount on Bond 30

To Cash 260

31 Dec:-

Cash A/c Dr 14.5

To interest income 14.5

Unrealized gain/loss – other comprehensive income 20

To Available for sale securities 20

2 Jan 2019:-

Cash Dr. 250

Realized Loss on available for sale securities 40

To Available for sale securities 270

To Unrealized gain/loss – other comprehensive income account 20