Tanner-UNF Corporation acquired as a long-term investment $300 million of 10% bonds, dated July 1, on July 1, 2018. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 7% for bonds of similar risk and maturity. Tanner-UNF paid $364 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, 2018, was $375 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. At what amount will Tanner-UNF report its investment in the December 31, 2018, balance sheet?

4. Suppose Moodys bond rating agency downgraded the risk rating of the bonds motivating TannerUNF to sell the investment on January 2, 2019, for $360 million. Prepare the journal entry to record the sale.