Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $170 millio

Question

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $170 million of 10% 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 maturity the market yield was 12%. The price paid for the bonds was $151 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 $160 million.

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?

Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $170 million of 10% bonds, dated January 1, on January 1, 2018. Management intends to include the investment in a short-term, active trading portfolio. For bonds of similar risk and maturity the market yield was 12%. The price paid for the bonds was $151 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 $160 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 any entry necessary to achieve this reporting objective.
5. How would Fuzzy Monkey's 2018 statement of cash flows be affected by this investment?

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $170 million of 10% 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 maturity the market yield was 12%. The price paid for the bonds was $151 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 $160 million. 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 View journal entry worksheet

Explanation / Answer

Date

General Journal

Debit

Credit

Jan 1 2018

Investment in bonds

170

Discount on bond investment

19

Cash

151

June 30 2018

Cash

8500000

Discount on bond investment

560000

Interest revenue

9060000

Dec 31 2018

Cash

8500000

Discount on bond investment

593600

Interest revenue

9093600

Explanation:

Date

Cash

Interest

@5% x

170000000

Effective

Interest

@6% x

Balance

Discount

Amortization

Balance

Jan 1 2018

151000000

June 30 2018

8500000

9060000

560000

151560000

Dec 31 2018

8500000

9093600

593600

152153600

Fuzzy Monkey will report the investment at its unamortized cost of $152153600 as shown on the previous slide. The reason for this is that the security is classified as held-to-maturity.

An alternative computation of the unamortized cost is as follows:

Investment in bonds

170000000

Discount on bonds

1/1 value

19000000

6/30 amortization

(560000)

12/31 amortization

(593600)

17846400

Unamortized cost

152153600

Note: that the fair value of $160 million is ignored here.

Date

General Journal

Debit

Credit

Jan 1 2018

Investment in bonds

170

Discount on bond investment

19

Cash

151

June 30 2018

Cash

8500000

Discount on bond investment

560000

Interest revenue

9060000

Dec 31 2018

Cash

8500000

Discount on bond investment

593600

Interest revenue

9093600

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

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