Fuzzy Monkey Technologies Inc purchased as a long-term investment S180 million o

Question

Fuzzy Monkey Technologies Inc purchased as a long-term investment S180 million of 6% bonds, dated January 1 on January 1 2018. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and m was 8%. The price paid for the bonds was $160 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 $170 million. aturity the market yield Required: 1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). 4. At what amount will Fuzzy Monkey report its investment in the December 31, 2018, balance sheet? 5. How would Fuzzy Monkey's 2018 statement of cash flows be affected by this investment? Complete this question by entering your answers in the tabs below. Req 1 to 3 Req 4 Req 5 Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places, (i.e., 5,500,000 should be entered as 5.50).) View transaction list Journal entry worksheet Record Fuzzy Monkey's investment on bonds on January 1, 2018.

Explanation / Answer

Solution 1-3:

Solution 4:

Amount at which fuzzy monkey will report investment at dec 31, 2018 balance sheets = Cash paid + Discount amortized

= $160 + $1 + $1.04 = $162.04 million

Solution 5:

Operating cash flow - $10.8 million - Inflow

Investing cash flow - $160 million - Outflow

Journal Entries - Fuzzy Monkey Technologies Inc. Event Date Particulars Debit (In Million) Credit (In Million) 1 1-Jan-18 Investment in Bond Dr $180.00          To Discount on bond investment $20.00          To Cash $160.00 (Being investment in bond recorded) 2 30-Jun-18 Cash Dr ($180 * 6% * 6/12) $5.40 Discount on bond investment Dr $1.00          To Interest revenue ($160*8%*6/12) $6.40 (Being revenue recoginition for bond interest and discount amortized) 3 31-Dec-18 Cash Dr ($180 * 6% * 6/12) $5.40 Discount on bond investment Dr $1.04          To Interest revenue ($161*8%*6/12) $6.44 (Being revenue recoginition for bond interest and discount amortized)

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