Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $ 250 milli

Question

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $ 250 million of 8% bonds, dated January 1, on January 1, 2018. Management intends to have the investment available for sale when circumstances warrant. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $228 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2018, was $240 million. Required 1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate) 4-a. At what amount will Fuzzy Monkey report its investment in the December 31, 2018, balance sheet? 4-b. Prepare the entry necessary to achieve this reporting objective. 5. How would Fuzzy Monkey's 2018 statement of cash flows be affected by this investment?

Explanation / Answer

Requirement 1 ( $ in Million) Account title & Explanation Debit Credit 01-Jan Investment in Bonds                   250.00 Discount on Bonds Investment                     22.00 Cash                   228.00 30-Jun Cash (250*8%*1/2)                      10.00 Discount on Bonds Investment                        1.40 Interest Revenue                     11.40 31-Dec Cash                      10.00 Discount on Bonds Investment                        1.47 Interest Revenue                     11.47 Date Cash Interest Effective Interest @5% Discount amortization Balance 01-Jan 228 30-Jun 10 11.40 1.4 229.4 31-Dec 10 11.47 1.47 230.87 Requirement 2 Fuzzy Monkey will report its Investment in December 31, 2018 Balance sheet at its fair value, as managament intends to have the investment available for sale when circumstances warrants. The fair value of Bonds as on December 31, 20186 is 240 Million Requirement 3 Account title & Explanation Debit Credit Fair Value adjustment Account 9.13 Investment in Bonds (240-230.87) 9.13 ( Fair value-carrying value as on December 31, 2018) Requirement 4 Cash flow section Amount Inflow/Outflow Operating Cash flows                     20.00 Inflow Investing cash flow                   228.00 Outflow

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.