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1) Tanner-UNF Corporation obtains as long-term investment $240 million of 6% bonds, dated July 1, and July 1, 2009. Company management has positive intent and ability to hold bonds until maturity. Market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200 million for bonds. Company will get interest semiannually on June 30 and December 31. As a result of changing market conditions, fair value of bonds at December 31, 2009, was $210 million.

problems:

1. Make journal entry to record Tanner-UNF's investment in bonds on July 1, 2009.

2. Make journal entry by Tanner-UNF to record interest on December 31, 2009, at the effective (market) rate.

3. At what amount will Tanner-UNF report its investment in December 31, 2009, balance sheet? Describe why?

4. Assume Moody's bond rating agency downgraded risk rating of bonds motivating Tanner-UNF to sell  investment on January 2, 2010, for $190 million. Make journal entry to record sale.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M918187

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