Fuzzy Monkey Technologies, Inc., purchased as a long-term investment 60 million

Question

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment 60 million of 6% bonds, dated January 1, on January 1, 2016. Management intends to have the investment available for sale when circumstances warrant. For bonds of similar risk and maturity the market yield was 8%. The price paid for the bonds was $46 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, 2016, was $50 million. Required: 1. to 3. 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 General Journal January 01, 2016 No Transaction Recorded June 30, 2016 Cash Interest Revenue December 31, 2016 Cash Interest Revenue 4.1 At what amount will Fuzzy Monkey report its investment in the December 31, 2016, balance sheet? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places, (i.e., 5,500,000 should be entered as 5.50).) million

Explanation / Answer

Date Accounts Title Dr Cr 1-Jan Long term Investment 60 Cash 46 Discount on Bond Investment 14 (Being bond purchased at discount) 30-Jun Cash (60 million*.03) 1.8 Discount on Bond Investment 0.04 Interest revenue (46 million*4%) 1.84 (Being interest revenur credited with effective interest rate i.e half of 8% as semi annual interest payment 31-Dec Cash (60 million*.03) 1.8 Discount on Bond Investment 0.0384 0.04 Interest revenue (46 million- .04 *4%) 1.838 1.84 (Being interest revenur credited with effective interest rate i.e half of 8% as semi annual interest payment and the difference between cah and interest revenue is debited with bond discount rounded off to 2 decimal Ans 2 It is a temporary decline so we have to take this into account Long term Investment in Bonds 50 million Ans 3 Unrealized Loss for Long term Investment 10 Allownce To adjuct Long term Investment to Market 10 (as it is a temporary decline so it is an unrealized loss which is debited) Suppose it is a permanent decline Realized Loss for Long term Investment 10 Allownce To adjuct Long term Investment to Market 10 (as it is a permanent decline so it is an loss which is debited and charged to Income statement

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