Just a textbook answer, why there is no answer for this??? Dead chegg This is a

Question

Just a textbook answer, why there is no answer for this??? Dead chegg

This is a variation of E 12-1 focusing on trading securities.] Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1 , 2018. The market interest rate (yield) was 8% 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 is holding the bonds in its trading portfolio. As a result of changing market conditions, the fair value of the bonds at December 31, 2018, was $210 million. Required: 1. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2018. 2. Prepare the journal entries by Tanner-UNF to record 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 $190 million. Prepare the journal entry to record the sale.

Explanation / Answer

Amount

Dr $ millions

Amount

Cr $ millions

investment in bonds a/c

To Bank a/c

Being $ 240 million bonds of 6% interest

Have been purchased for $ 200 million

(Only cash paid is to be considered)

200

Bank A/c

To Interest Revenue A/c

( 210 * 6%* 6/12)

Being interest amount received

6.3

Investment in Bond A/c

To Interest Revenue A/c

Being the capitalisation of Bond premium

Assumed that the bond is sold in the next year itself. Otherwise this premium should be amortised over the tenure of the bond on straight line method when the interest is being paid

40

Bank A/c

Interest Revenue a/c

To Investment in Bond A/c

Being the bonds were sold and Investment in Bond a/c has been closed

190

50

240

Date Particulars

Amount

Dr $ millions

Amount

Cr $ millions

01.07.2018

investment in bonds a/c

To Bank a/c

Being $ 240 million bonds of 6% interest

Have been purchased for $ 200 million

(Only cash paid is to be considered)

200

200

31.12.2018

Bank A/c

To Interest Revenue A/c

( 210 * 6%* 6/12)

Being interest amount received

6.3

6.3

31.12.2018

Investment in Bond A/c

To Interest Revenue A/c

Being the capitalisation of Bond premium

Assumed that the bond is sold in the next year itself. Otherwise this premium should be amortised over the tenure of the bond on straight line method when the interest is being paid

40

40

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