E 12-1 Securities held to-maturity, bond investment: effective interest discount L012-1 Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2021. Company management has the positive intent and ability to hold the bonds until maturity. The market inter- est 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 condi- tions, 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 entries by Tanner-UNF to record interest on December 31, 2021, at the effective (market) rate. 3. At what amount will Tanner-UNF report its investment in the December 31, 2021, balance sheet? Why? 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 entry to record the sale. Mills Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2021. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 4% for bonds of similar risk and maturity. Mills paid $280 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 $270 million. Required: 1. Prepare the journal entry to record Mills'investment in the bonds on July 1, 2021. 2. Prepare the journal entry by Mills to record interest on December 31, 2021, at the effective market) rate. E 12-2 Securities held to-maturity, bond investment: effective interest premium L012-1 CHAPTER 12 Investments 697 3. At what amount will Mills report its investment in the December 31, 2021, balance sheet? Why? 4. Suppose Moody's bond rating agency upgraded the risk rating of the bonds, and Mills decided to sell the investment on January 2, 2022, for $290 million. Prepare the journal entry to record the sale