Question

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment S80 million of 8% bonds, dated January 1, on January 1, 2012. Management has the positive intent and ability to hold the bonds unti maturity For bonds of similar risk and maturity the market yeld was 10% The price paid for the bonds was $66 milion Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2012, was $70 million. Required: 1. Prepare the journal entry to record Fuzzy Monkey's investment on January 1, 2012. (Enter your answers in millions.) Journal Debit Credit Investment in bonds 80 Discount on bond investment Cash 14 2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2012 (at the effective rate). Do not round your intermediate calculations. Enter your answers in millions rounded to 1 decimal place.) General Journal Credit 3.2 nterest revenue 3.3 3. Prepare the journal entry by Fuzzy Monkey to reoord interest on December 31, 2012 (at the offective rate). (Do not round your intermediate calculations. Enter decimal places.) your answers in millions rounded to 2 General Journal Debit Cash Discount on bond investment 3.20 3.31 4. At what armount will Fuzzy Monkey report its investment in the December 31. 2012, statement of financial position? (Do not round y

Answer 1

1-3. Journal Entries

4. The Investments = $70 Million. Because these are available for sale securities and they will be recognized at market value.

5. Operating Cashflow = $6.40 Million = Cash Inflow (Interest Receipt)

Investing Cash Flow = $66 Million = Cash Outflow (Bond Purchase)