Exercise 12-1 Securities held-to-maturity; bond investment; effective interest, discount [LO12-1]

Tanner-UNF Corporation acquired as a long-term investment $260 million of 6.0% bonds, dated July 1, on July 1, 2018. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 9% for bonds of similar risk and maturity. Tanner-UNF paid $220.0 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, 2018, was $230.0 million. Required: 1. & 2. Prepare the journal entry to record Tanner-UNFs investment in the bonds on July 1, 2018 and interest on December 31, 2018, at the effective (market) rate. 3. At what amount will Tanner-UNF report its investment in the December 31, 2018, balance sheet? 4. Suppose Moodys bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2019, for $210.0 million. Prepare the journal entry to record the sale.