Let's solve each requirement step by step: --- ## **Requirement 1 & 2: Journal Entry for Investment and Interest** ### **1. Purchase of Bonds on July 1, 2021** - **Tanner-UNF paid:** $200 million for $240 million face value, 6% bonds. - **Journal Entry:** ``` Dr. Available-for-sale debt investments 200 Cr. Cash 200 ``` ### **2. Interest Received on December 31, 2021** - **Interest Payment (for 6 months):** - Face value: $240 million - Rate: 6% annual, so for half a year: \( 240 \times 6\% \times \frac{6}{12} = 7.2 \) million - **Interest Revenue (at market rate 8%):** - Amount paid: $200 million - Market rate: 8% annual, so for half a year: \( 200 \times 8\% \times \frac{6}{12} = 8 \) million - Difference is discount amortization: \( 8. - 7.2 = .8 \) million - **Journal Entry:** ``` Dr. Cash 7.2 Dr. Available-for-sale debt investments .8 Cr. Interest revenue 8. ``` --- ## **Requirement 3: Fair Value Adjustment at December 31, 2021** - **Fair value at 12/31/2021:** $210 million - **Carrying amount after amortization:** $200.8 million ($200 + $.8) - **Unrealized gain:** $210 - $200.8 = $9.2 million - **Journal Entry:** ``` Dr. Fair value adjustment (AFS investment) 9.2 Cr. Unrealized holding gain—OCI 9.2 ``` --- ## **Requirement 4: Sale on January 2, 2022 for $190 million** ### **Step 1: Update Fair Value Adjustment** - **Carrying amount at 12/31/2021:** $200.8 million - **Fair value at sale date:** $190 million - **Decrease in fair value:** $190 - $210 = **($20) million** (from the last fair value) - **Reverse previous gain and record additional loss:** - Total adjustment needed: $210 - $190 = $20 million loss. - Already recognized: $9.2 million gain. - Net adjustment on 1/2/2022: $20 - $9.2 = $10.8 million loss. #### **Journal Entry (Fair Value Adjustment):** ``` Dr. Unrealized holding loss—OCI 10.8 Cr. Fair value adjustment (AFS investment) 10.8 ``` ### **Step 2: Reclassification Adjustment** - **Reverse cumulative OCI gain/loss into earnings upon sale.** - **Total loss in OCI is now $10.8 million (net loss from prior gain and new loss).** #### **Journal Entry (Reclassification):** ``` Dr. Reclassification adjustment—OCI 10.8 Cr. Realized loss on AFS investment 10.8 ``` ### **Step 3: Record the Sale** - **Cash received:** $190 million - **Carrying value:** $190 million (now at fair value after adjustment) - **No gain or loss, as carrying value equals proceeds.** #### **Journal Entry (Sale):** ``` Dr. Cash 190 Cr. Available-for-sale debt investments 190 ``` --- ## **Summary Table** | Date | Account | Debit ($ million) | Credit ($ million) | |--------------|----------------------------------------------|-------------------|--------------------| | 7/1/2021 | AFS debt investment | 200 | | | | Cash | | 200 | | 12/31/2021 | Cash | 7.2 | | | | AFS debt investment | .8 | | | | Interest revenue | | 8. | | 12/31/2021 | Fair value adjustment | 9.2 | | | | Unrealized holding gain—OCI | | 9.2 | | 1/2/2022 | Unrealized holding loss—OCI | 10.8 | | | | Fair value adjustment | | 10.8 | | 1/2/2022 | Reclassification adjustment—OCI | 10.8 | | | | Realized loss on AFS investment | | 10.8 | | 1/2/2022 | Cash | 190 | | | | AFS debt investment | | 190 | --- ## **Final Answers (Journal Entries for Req 4):** ### **1. Record the fair-value adjustment, AFS investment:** ``` Dr. Unrealized holding loss—OCI 10.8 Cr. Fair value adjustment (AFS investment) 10.8 ``` ### **2. Record reclassification adjustment:** ``` Dr. Reclassification adjustment—OCI 10.8 Cr. Realized loss on AFS investment 10.8 ``` ### **3. Record the sale:** ``` Dr. Cash 190 Cr. Available-for-sale debt investments 190 ``` --- **Let me know if you want the journal entries for the first requirements in more detail!**