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Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January...

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2018. Management intends to have the investment available for sale when circumstances warrant. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 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 $70 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 the entry necessary to achieve this reporting objective.
5. How would Fuzzy Monkey's 2018 statement of cash flows be affected by this investment?

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Answer #1

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Answer can be rounded per question requirement e.g. 2 decimal or less or more Solution: Treated as Available for sale Securities: ounal entries Date Jan.01 2018 Account title and explaination Investment in Bonds Discount on Bonds Investment Cash To record the investment in bonds) | Cash (80*496) Discount on Bonds Investment Interest Revenue (66*5%) To record the interest revenue) Debit Credit $ 80.00 1) (plug) $ 14.00 66.00 $ 3.20 $ 0.10 2) Jun.30 2018 (plug) $ 3.30 OR: S 3.20 $ 0.11 3) | Cash (80*496) Dec.31 2018 3.200 0.105 (plug) Discount on Bonds Investment Interest Revenue (66+0.10)*5% To record the interest revenue) $ 3.31 3.305 S 70.00 at fair value, because bonds are being treated as trading securities. 4)bDate Account title and explaination Debit Credit $ 3.79 Dec.31 Fair value adjustment (70) (66+0.10+0.11) 2018 or 3.8 $ 3.79 Unrealized holding Gain and loss OC To record the adjustment) outflow (66-3.20-3.20) No effect 5) a) b) $ 59.60 Operating Cash Flow Investing Cash Flow

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