Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $130 milli
ID: 2560118 • Letter: F
Question
Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $130 million of 8% 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 10%. The price paid for the bonds was $115 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 $120 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?
Explanation / Answer
Answer:-
Part 1. to 3.
Journal entry to record Fuzzy Monkey’s investment on January 1, 2018:-
Journal entries by Fuzzy Monkey to record the interest on June 30, 2018 and December 31, 2018:-
CR.
Part -4-a & b:-
Fuzzy Monkey will report the investment at its fair value of $120 million. The reason for this is that the investment will be classified as a trading security.
Part -5:-
1.) Cash flow from investing activities will reduce by purchase price of short-term investment of $115 million
2.) Cash flow from Financing activities will Increase by interest and Discount on bond investment of 10,400,000 and 15,000,000
Please let me know in case you require any clarifications.
Thanks & Regards,
Avinash Kumar
Investment in bonds 130,000,000 DR. Discount on bond investment 15,000,000 CR. Cash 115,000,000 CR.Related Questions
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