Question

Problem 12-1 Securities held-to-maturity, bond Investment effective interest (LO12.1. 1221 Fuzzy Monkey Technologies, Inc. purchased as a long term investment 580 million of bonds dated Jay ton January 2018 Management has the positive intentand ability to hold the bonds marity For bonds of and matury the ketyreld was 10%. The pace paid for the bonds was 566 million interests received semm y on June 30 and Deceber Due to Changing market condtions, the for value of the bonds at December 31, 2018, was 570 million Required: 1. to 3. Prepare the relevant journal entries on the respective dates record the interest at the effective ratel. 4. At what amount will Fuzzy Monkey report is 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 Red 1 to 3 ROS Prepare the relevant journal entries on the respective dates (record the interest at the effective rate), no entry transaction/event, select "No jouma entry required in the ti accoun t your answers in mind round places 1.., 5,500,000 should be entered as 3.50) required for a ta decimal View transaction Journal entry worksheet 1 2 3 Record Pury Honkey's investment on bonds on January 1, 2018 P ost Ned>

Answer 1

Solution 1:

Journal Entries - Fuzzy Monkey Technologies Inc.
Event	Date	Particulars	Debit (In Million)	Credit (In Million)
1	01-Jan-18	Investment in Bond Dr	$80.00
		To Cash		$66.00
		To Discount on bond investment		$14.00
		(Being investment in bond recorded)
2	30-Jun-18	Cash Dr ($80 * 8% * 6/12)	$3.20
		Discount on bond investment Dr	$0.10
		To Interest revenue ($66*10%*6/12)		$3.30
		(Being revenue recoginition for bond interest and discount amortized)
3	31-Dec-18	Cash Dr ($80 * 8% * 6/12)	$3.20
		Discount on bond investment Dr	$0.11
		To Interest revenue [($66+ $0.10)*10%*6/12]		$3.31
		(Being revenue recoginition for bond interest and discount amortized)

Solution 2:

Investment to be reported = $66 + $0.10 + $0.11 = $66.21 millions

Solution 3:

Statement of cash flows (Partial) For 2018
Particulars	Amount (In million)
Cash flow from operating activities:
Interest revenue ($3.20+ $3.20)	$6.40
Cash flow from investing activities:
Cash paid for purchase of investment	-$66.00