Question

Tanner-UNF Corporation acquired as a long-term investment $260 million of 7% bonds, dated July 1, on...

Tanner-UNF Corporation acquired as a long-term investment $260 million of 7% bonds, dated July 1, on July 1, 2018. The market interest rate (yield) was 9% for bonds of similar risk and maturity. Tanner-UNF paid $220 million for the bonds. The company will receive interest semiannually on June 30 and December 31. Company management is holding the bonds in its trading portfolio. As a result of changing market conditions, the fair value of the bonds at December 31, 2018, was $230 million. Record the entry to adjust the fair value.

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Answer #1

Solution:

Journal Entries - Tanner UNF Corportation
Event Date Particulars Debit (In Million) Credit (In Million)
1 1-Jul-18 Investment in Bond Dr $260.00
         To Discount on bond investment $40.00
         To Cash $220.00
(Being investment in bond recorded)
2 31-Dec-18 Cash Dr ($260 * 7% * 6/12) $9.10
Discount on bond investment Dr $0.80
         To Interest revenue ($220*9%*6/12) $9.90
(Being revenue recoginition for bond interest and discount amortized)
3 31-Dec-18 Fair value adustment Dr ($230 - $220.80) $9.20
         To Unrealized holding gain on trading investment $9.20
(To record adjustment entry to recognized bond at fair value)
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