Question
Tanner-UNF Corporation acquired as a long-term investment $230 million of 8% bonds, dated July 1, on July 1, 2024. Company management has classified the bonds
Tanner-UNF Corporation acquired as a long-term investment $230 million of 8% 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 10% for bonds of similar risk and maturity. Tanner-UNF paid $190 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 $200 million.
Required: 1. & 2. Prepare the journal entry to record Tanner-UNFs investment in the bonds on July 1, 2024 and interest on December 31, 2024, at the effective (market) rate.
3. Prepare any additional journal entry
4. Suppose Moodys bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2025, 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.
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