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Prepare the journal entries to record the sale

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Question

Tanner-UNF Corporation acquired as a long-term investment $220 million of 6% bonds, dated July 1, on July 1, 2018. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $180 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 $190 million.

Required:

1. & 2. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2018 and interest on December 31, 2018, at the effective (market) rate.

3. what are any additional journal entries necessary for Tanner-UNF to report its investment in the December 31, 2018, balance sheet.

4. Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2019, for $170 million. Prepare the journal entries to record the sale.

Reference no: EM132315491

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