Question

Tanner-UNF Corporation acquired as a long-term investment $310 million of 6.0% bonds, dated July 1, on July 1, 2016. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 9% for bonds of similar risk and maturity. Tanner-UNF paid $280.0 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, 2016 was $290.0 million. Required: 1. & 2. Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2016 and interest on December 31, 2016, at the effective (market) rate. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).)

Answer 1

Solution 1 and 2:

Journal Entries - Tanner - UNF Corporation
Event	Date	Particulars	Debit (In Million)	Credit (In Million)
1	01-Jul-18	Investment in Bond Dr	$310.00
		To Cash		$280.00
		To Discount on bond investment		$30.00
		(Being investment in bond recorded)
2	31-Dec-18	Cash Dr ($310 * 6% * 6/12)	$9.30
		Discount on bond investment Dr	$3.30
		To Interest revenue ($280*9%*6/12)		$12.60
		(Being revenue recoginition for bond interest and discount amortized)