Tanner-UNF Corporation acquired as a long-term investment $260 million of 5% 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 7% 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 $215 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.

Record Tanner-UNFs investment in the bonds on July 1, 2021. Record interest on December 31, 2021.

3. Prepare any additional journal entry necessary for Tanner-UNF to report its investment in the December 31, 2021, balance sheet. Record the entry for fair value adjustment.

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 $190 million. Prepare the journal entries necessary to record the sale, including updating the fair-value adjustment, recording any reclassification adjustment, and recording the sale.

Record the entry for fair-value adjustment, AFS investment. Record the entry for reclassification adjustment. Record the sale of the investment by Tanner-UNF.

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