Question: [This is a variation of E 121 modified to focus on available-for-sale securities.] Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds,

[This is a variation of E 12–1 modified to focus on available-for-sale securities.]
Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2021. Company management has classified the bonds as an available-for-sale investment. 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. As a result of changing market conditions, the fair
value of the bonds at December 31, 2021, was $210 million.

Required:
1. Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2021.
2. Prepare the journal entry by Tanner-UNF to record interest on December 31, 2021, at the effective (market) rate.

3. Prepare any additional journal entry necessary for Tanner-UNF to report its investment in the December 31, 2021, 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, 2022, for $190 million. Prepare the journal entries necessary to record the sale, including updating the fair-value adjustment, recording any reclassification adjustment, and recording the sale.

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Requirement 1 in millions Investment in bonds face amount 2400 Discount on bond investment difference 400 Cash price of bonds 2000 Requirement 2 Cash ... View full answer

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