Tanner-UNF Corporation acquired as a long-term investment $290 million of 8% 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 10% for bonds of similar risk and maturity. Tanner-UNF paid $260 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 $270 million. Required: 1. & 2. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2021 and interest on December 31, 2021, at the effective (market) rate. 3. Prepare any additional journal entry necessary for Tanner-UNF to report its investment in the December 31, 2021, balance sheet. 4. 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 $250 million. Prepare the journal entries necessary to record the sale, including updating the fair-value adjustment, recording any reclassification adjustment, and recording the sale.

Tanner-UNF Corporation acquired as a long-term investment $290 million of 8% 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 10% for bonds of similar risk and maturity. Tanner-UNF paid $260 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 $270 million. Required: 1. & 2. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2021 and interest on December 31, 2021, at the effective (market) rate. 3. Prepare any additional journal entry necessary for Tanner-UNF to report its investment in the December 31, 2021, balance sheet. 4. 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 $250 million. Prepare the journal entries necessary to record the sale, including updating the fair-value adjustment, recording any reclassification adjustment, and recording the sale.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 7MCQ

See similar textbooks

Similar questions

Whirlie Inc. issued $300,000 face value, 10% paid annually, 10-year bonds for $319,251 when the market of interest was 9%. The company uses the effective-interest method of amortization. At the end of the year, the company will record ________. A. a credit to cash for $28,733 B. a debit to interest expense for $31,267 C. a debit to Discount on Bonds Payable for $1,267 D. a debit to Premium on Bonds Payable for $1.267
Parilo Company acquired 170,000 of Makofske Co., 5% bonds on May 1, 2016, at their face amount. Interest is paid semiannually on May 1 and November 1. On November 1, 2016, Parilo Company sold 50,000 of the bonds for 96. Journalize entries to record the following: a. The initial acquisition of the bonds on May 1. b. The semiannual interest received on November 1. c. The sale of the bonds on November 1. d. The accrual of 1,000 interest on December 31, 2016.
The Dandelion corporation acquired as a long-term investment $240,000 of 6% bonds, dated July 1, on July 1, 2023. Dandelion management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 8% for bonds of similar risk and maturity. The company paid $200,000 for the bonds and 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, 2023, was $210,000. The entry for interest expense has not been recorded yet. Prepare the according journal entries and entry on the balance sheet for year end 2023.
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2021. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2021, was $70 million.Required:1. Prepare the journal entry to record Fuzzy Monkey’s investment on January 1, 2021.2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2021 (at the effective rate).3. Prepare the journal entry by Fuzzy Monkey to record interest on December 31, 2021 (at the effective rate).4. At what amount will Fuzzy Monkey report its investment in the December 31, 2021 balance sheet? Why?5. How would Fuzzy Monkey’s 2021 statement of cash flows be affected by this investment? (If more than…
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $120 million of 6% bonds, dated January 1, on January 1, 2021. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 8%. The price paid for the bonds was $100 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2021, was $110 million.Required:1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). 1, record fuzzys monkeys investment on bonds on january 1 2021 2. record the interest revenue on june 30 2021 3, record the interest revenue on december 31 20214. At what amount will Fuzzy Monkey report its investment in the December 31, 2021 balance sheet?5. How would Fuzzy Monkey's 2021 statement of cash flows be affected by this investment? (If more than one approach is possible,…
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $250 million of 8% bonds, dated January 1, on January 1, 2021. Management intends to have the investment available for sale when circumstances warrant. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $228 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2021, was $240 million.Required:1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate).4-a. At what amount will Fuzzy Monkey report its investment in the December 31, 2021, balance sheet?4-b. Prepare the entry necessary to achieve this reporting objective.5. How would Fuzzy Monkey's 2021 statement of cash flows be affected by this investment? (If more than one approach is possible, indicate the one that is most likely.)
On July 1, Year 2, MODESTA Company purchased P10 million of West Company’s 8% bonds due on July 1, Year 10. Based on the company’s business model for the portfolio of investments, MODESTA designates the bonds as investments measured at amortized cost. The bonds, which pay interest semiannually on January 1 and July 1 were purchased for P8,750,000 to yield 10%. In its statement of comprehensive income for the year ended December 31, Year 2, MODESTA Company should report interest income of a. P437,500 b. P350,000 c. P500,000 d. P400,000
Fuzzy Monkey Technologies, Incorporated purchased as a long-term investment $150 million of 6% bonds, dated January 1, on January 1, 2024. Management intends to have the investment available for sale when circumstances warrant. When the company purchased the bonds, management elected to account for them under the fair value option. For bonds of similar risk and maturity the market yield was 8%. The price paid for the bonds was $133 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2024, was $140 million. Required: 1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). 4-a. At what amount will Fuzzy Monkey report its investment in the December 31, 2024, balance sheet? 4-b. Prepare the journal entry necessary to achieve this reporting objective. 5. How would Fuzzy Monkey’s 2024 statement of cash flows be affected by this…
Lance Brothers Enterprises acquired $720,000 of 3% bonds, dated July 1, on July 1, 2021, as a long-term investment. Management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 4% for bonds of similar risk and maturity. Lance Brothers paid $600,000 for the investment in bonds and will receive interest semiannually on June 30 and December 31. Prepare the journal entries (a) to record Lance Brothers’ investment in the bonds on July 1, 2021, and (b) to record interest on December 31, 2021, at the effective (market) rate.
Mercer Corporation acquired $400,000 of Park Company’s bonds on June 30, 2018, for $409,991.12. The bonds carry a 12% stated interest rate and pay interest semiannually on June 30 and December 31. The appropriate market interest rate is 11%, and the bonds are due June 30, 2021. Required: 1. Prepare an investment interest income and premium amortization schedule, using the: a. straight-line method b. effective interest method 2. Prepare journal entries to record the December 31, 2018, and December 31, 2020, interest receipts using both methods.
Hello, Can you assist with questions attached, thanks much.
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January1, on January 1, 2018. Management has the positive intent and ability to hold the bonds until maturity. For bondsof similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest isreceived semiannually on June 30 and December 31. Due to changing market conditions, the fair value of thebonds at December 31, 2018, was $70 million.Required:1. Prepare the journal entry to record Fuzzy Monkey’s investment on January 1, 2018.2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2018 (at the effective rate).3. Prepare the journal entries by Fuzzy Monkey to record interest on December 31, 2018 (at the effective rate).4. At what amount will Fuzzy Monkey report its investment in the December 31, 2018, balance sheet? Why?5. How would Fuzzy Monkey’s 2018 statement of cash flows be affected by this investment?