Tanner-UNF Corporation acquired as a long-term investment $260 million of 7% bonds, dated July 1, on July 1, 2021. Company management has the positive intent and ability to hold the bonds until maturity, but when the bonds were acquired Tanner-UNF decided to elect the fair value option for accounting for its investment. The market interest rate (yield) was 9% for bonds of similar risk and maturity. Tanner-UNF paid $230 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 $240 million. 1. How would this investment be classified on Tanner-UNF's balance sheet? 2. to 4. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2021, interest on December 31, 2021, at the effective (market) and fair value changes as of December 31, 2021. 5. At what amount will Tanner-UNF report its investment in the December 31, 2021, balance sheet? 6. Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2022, for $220 million. Prepare the journal entries to record the sale.
Tanner-UNF Corporation acquired as a long-term investment $260 million of 7% bonds, dated July 1, on July 1, 2021. Company management has the positive intent and ability to hold the bonds until maturity, but when the bonds were acquired Tanner-UNF decided to elect the fair value option for accounting for its investment. The market interest rate (yield) was 9% for bonds of similar risk and maturity. Tanner-UNF paid $230 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 $240 million. 1. How would this investment be classified on Tanner-UNF's balance sheet? 2. to 4. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2021, interest on December 31, 2021, at the effective (market) and fair value changes as of December 31, 2021. 5. At what amount will Tanner-UNF report its investment in the December 31, 2021, balance sheet? 6. Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2022, for $220 million. Prepare the journal entries to record the sale.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education