Question

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.

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)