Reference no: EM133923160
Problem
Tanner-UNF Corporation acquired as a long-term investment $250 million of 5% bonds, dated July 1, on July 1, 2027. Company management has the positive intent and ability to hold the bonds until maturity, but when the bonds were acquired, Tanner-UNF decided to elect the fair value option for accounting for its investment. The market interest rate (yield) was 7% for bonds of similar risk and maturity. Tanner-UNF paid $210 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, 2027, was $220 million.
Task
I. How would this investment be classified on Tanner-UNF's balance sheet?
II. to IV. create the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2027, interest on December 31, 2027, at the effective (market) rate, and fair value changes as of December 31, 2027. Get the instant assignment help.
V. At what amount will Tanner-UNF report its investment in the December 31, 2027, balance sheet?
VI. Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2028, for $200 million. Prepare the journal entries to record the sale.
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