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Tanner-UNF Corporation acquired as a long-term investment $360 million of 8% bonds, dated July 1, on July 1, 2021. Company management has the positive intent and ability to hold the bonds until maturity, but when the bonds were acquired Tanner-UNF decided to elect the fair value option for accounting for its investment. The market interest rate (yield) was 10% for bonds of similar risk and maturity. Tanner-UNF paid $330 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 $340 million.   Required: 1. How would this investment be classified on Tanner-UNF's balance sheet? 2. to 4. Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2021, interest on December 31, 2021, at the effective (market) and fair value changes as of December 31, 2021. 5. At what amount will Tanner-UNF report its investment in the December 31, 2021, balance sheet?

Tanner-UNF Corporation acquired as a long-term investment $360 million of 8% bonds, dated July 1, on July 1, 2021. Company management has the positive intent and ability to hold the bonds until maturity, but when the bonds were acquired Tanner-UNF decided to elect the fair value option for accounting for its investment. The market interest rate (yield) was 10% for bonds of similar risk and maturity. Tanner-UNF paid $330 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 $340 million.   Required: 1. How would this investment be classified on Tanner-UNF's balance sheet? 2. to 4. Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2021, interest on December 31, 2021, at the effective (market) and fair value changes as of December 31, 2021. 5. At what amount will Tanner-UNF report its investment in the December 31, 2021, balance sheet?

Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter9: Long-term Liabilities
Section: Chapter Questions
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Tanner-UNF Corporation acquired as a long-term investment $360 million of 8% bonds, dated July 1, on July 1, 2021. Company management has the positive intent and ability to hold the bonds until maturity, but when the bonds were acquired Tanner-UNF decided to elect the fair value option for accounting for its investment. The market interest rate (yield) was 10% for bonds of similar risk and maturity. Tanner-UNF paid $330 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 $340 million.
 
Required:
1. How would this investment be classified on Tanner-UNF's balance sheet?
2. to 4. Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2021, interest on December 31, 2021, at the effective (market) and fair value changes as of December 31, 2021.
5. At what amount will Tanner-UNF report its investment in the December 31, 2021, balance sheet?
6. 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 $320 million. Prepare the journal entries to record the sale.

 

Journal entry worksheet < 1 2 Record Tanner-UNF's investment in the bonds on July 1, 2021. Note: Enter debits before credits. Transaction 1 3 General Journal Investment in bonds Cash Discount on bond investment Debit 360.00 Credit 330.00 30.00
Transcribed Image Text:Journal entry worksheet < 1 2 Record Tanner-UNF's investment in the bonds on July 1, 2021. Note: Enter debits before credits. Transaction 1 3 General Journal Investment in bonds Cash Discount on bond investment Debit 360.00 Credit 330.00 30.00
Journal entry worksheet 1 2 3 Record interest on December 31, 2021, at the effective (market) rate. Transaction 2 Note: Enter debits before credits. General Journal Cash Discount on bond investment Interest revenue Debit 14.40 2.10 Credit 16.50
Transcribed Image Text:Journal entry worksheet 1 2 3 Record interest on December 31, 2021, at the effective (market) rate. Transaction 2 Note: Enter debits before credits. General Journal Cash Discount on bond investment Interest revenue Debit 14.40 2.10 Credit 16.50
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