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

Question

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $ 170 million of 10% 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 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, 2016, was $160 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 transactionlevent, 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 1 Record Fuzzy Monkey's investment on bonds on January/ 1, 2016. 2 Record the interest revenue on June 30, 2016. 3 Record the interest revenue on December 31, 2016 Credit Note : journal entry has been entered Record entry Clear entry View general journal

Explanation / Answer

1 to 3.

Journal

4.1

Investment = 151,000,000 + 560,000 + 593,600

= $152,153,600

4.2

Journal

5.

Impact on Statement of Cash Flows

Date Account Name Debit Credit Jan 1, 2016 Investment in AFS securities 170,000,000 Discount on Bond Investment 19,000,000 Cash 151,000,000 June 30, 2016 Cash
(170,000,000 x 10% x 6/12) 8,500,000 Discount on Bond Investment 560,000 Investment revenue
(151,000,000 x 12% x 6/12) 9,060,000 Dec 31, 2016 Cash
(170,000,000 x 10% x 6/12) 8,500,000 Discount on Bond Investment 593,600 Investment revenue
[(151,000,000 + 560,000) x 12% x 6/12) 9,093,600

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