Exercise 12-10 (Algo) Available-for-sale securities (LO12-1, 12-41

Tanner-UNF Corporation acquired as a long-term investment $200 million of 7% bonds, dated July 1, on July 1, 2024. Company management has classified the bonds as an available-for-sale investment. The market interest rate (yield) was 9% for bonds of similar risk and maturity. Tanner-UNF paid $160 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, 2024, was $170 million.

Required:

1. & 2. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2024 and interest on December 31, 2024. at the effective (market) rate.

1. Prepare any additional journal entry necessary for Tanner-UNF to report its investment in the December 31, 2024, balance sheet.
2. Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2025, for $150 million. Prepare the journal entries necessary to record the sale, including updating the fair-value adjustment, recording any reclassification adjustment, and recording the sale.

Prepare any additional journal entry needed for Tanner - UNF to report its investment in the December 31, 2024 balance sheet

Record the entry for reclassification adjustment

Record the sale of the investment by Tanner-UNF