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Prepare the journal entry to record Tanner-UNF investment

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Tanner-UNF Corporation acquired as a long-term investment $360 million of 8.0% bonds, dated July 1, on July 1, 2021. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 10% for bonds of similar risk and maturity. Tanner-UNF paid $330.0 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, 2021, was $340.0 million.

Required:

Question 1: Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2021 and interest on December 31, 2021, at the effective (market) rate.

Question 2: At what amount will Tanner-UNF report its investment in the December 31, 2021, balance sheet?

Question 3: Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2022, for $320.0 million. Prepare the journal entry to record the sale.

Reference no: EM132487819

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