order Now

Week 4 Homework Assignment Solution

Exercises E12-1, E12-5, E12-7, and E12-14

 

E 12–1: Securities held-to-maturity; bond investment; effective interest

LO12–1

      Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2013. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200 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, 2013 was $210 million.

          Required:

        1.  Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2013.

        2. Prepare the journal entry by Tanner-UNF to record interest on December 31, 2013, at the           effective (market) rate.

         3. At what amount will Tanner-UNF report its investment in the December 31, 2013, balance sheet? Why?

         4. Suppose Moody’s bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2014, for $190 million. Prepare the journal entry to record the sale.

We are always aiming to provide top quality academic writing services that will surely enable you achieve your desired academic grades. Our support is round the clock!

[order_calculator]