Exercise 12-10 (Algo) Available-for-sale securities [LO12-1, 12-4]

Tanner-UNF Corporation acquired as a long-term investment $245 million of 8% 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 10% 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 $205 million. Required: 1. & 2. Prepare the journal entry to record Tanner-UNFs investment in the bonds on July 1, 2021 and 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 Moodys bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2022, for $180 million. Prepare the journal entries necessary to record the sale, including updating the fair-value adjustment, recording any reclassification adjustment, and recording the sale.

Req 1 and 2 Reg 3 Reg 4 Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2021 and interest on December 31, 2021, at the effective (market) rate. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).) View transaction list View journal entry worksheet No Date General Journal Debit Credit 1 July 01, 2021 245.0 Investment in bonds Discount on bond investment Cash 45.0 200.0 2 December 31 2021 Cash 9.8 0.2 Discount on bond investment Interest revenue 10.0 Req 1 and 2 Req3 Reg 4 Prepare any additional journal entry necessary for Tanner-UNF to report its investment in the December 31, 2021, balance sheet. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).) View transaction list View journal entry worksheet ... No General Journal Debit Credit Date December 31, 2021 1 4.8 Fair value adjustment Gain on investment (unrealized, NI) 4.8 Req 1 and 2 Reg 3 Reg 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 $180 million. Prepare the journal entries necessary to record the sale, including updating the fair-value adjustment, recording any reclassification adjustment, and recording the sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).) Show less View transaction list View journal entry worksheet No Debit Credit 1 180.0 Date General Journal January 02, 2022 Cash Discount on bond investment Fair value adjustment Investment in bonds 44.8 20.2 245.0