Tanner-UNF Corporation acquired as a long-term investment $260 million of 7% bonds, dated July 1, on July 1, 2018. The market interest rate (yield) was 9% for bonds of similar risk and maturity. Tanner-UNF paid $220 million for the bonds. The company will receive interest semiannually on June 30 and December 31. Company management is holding the bonds in its trading portfolio. As a result of changing market conditions, the fair value of the bonds at December 31, 2018, was $230 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. Prepare any additional journal entry necessary for Tanner-UNF to 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 $200 million. Prepare the journal entries to record the sale.

1. Record Tanner-UNFs investment in the bonds on July 1, 2018.

Note: Enter debits before credits.

Event	General Journal	Debit	Credit
1	Investment in bonds
	Discount on bond investment
	Cash

2. Record interest on December 31, 2018.

Note: Enter debits before credits.

Event	General Journal	Debit	Credit
2	Cash
	Discount on bond investment
	Interest revenue

3. Record any adjustment necessary to report the bond investment in the December 31, 2018 balance sheet.

Note: Enter debits before credits.

Event	General Journal	Debit	Credit
1	Fair value adjustment
	Unrealized holding gainNI

4. Record the entry to adjust the fair value.

Note: Enter debits before credits.

Event	General Journal	Debit	Credit
1

5. Record the sale of the investment by Tanner-UNF.

Note: Enter debits before credits.

Event	General Journal	Debit	Credit
2