Question

Only 4a, 4b, and 5

Monkey Technologies, Inc., purchased as a short-term investment $70 million of dated January 1, on January 1, 2018. Management intends to include the ▲ Fuzzy 6% bonds, Investment in a short-term, active trading portfollo. For bonds of similar risk and maturity the market yield was 8%. The price paid for the bonds was $55 million. interest is recelved semlannually on June 30 and December 31. Due to changing market condtions, the fair value of the bonds at December 31, 2018, was $60 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? 3 Answer is not complete. Complete this question by entering your answers in the tabs below Req 1 to 3Req 4A Req 4B Req 5

Answer 1

Solution 1 to 3:

Journal Entries - Fuzzy Monkey Technologies Inc.
Event	Date	Particulars	Debit (In Million)	Credit (In Million)
1	1-Jan-18	Investment in Bond Dr	$70.00
		To Cash		$55.00
		To Discount on bond investment		$15.00
		(Being investment in bond recorded)
2	30-Jun-18	Cash Dr ($70 * 6% * 6/12)	$2.10
		Discount on bond investment Dr	$0.10
		To Interest revenue ($55*8%*6/12)		$2.20
		(Being revenue recoginition for bond interest and discount amortized)
3	31-Dec-18	Cash Dr ($70 * 6% * 6/12)	$2.10
		Discount on bond investment Dr	$0.10
		To Interest revenue ($55.10*8%*6/12)		$2.20
		(Being revenue recoginition for bond interest and discount amortized)

solution 4a:

Fuzzy monkey will report its investment in balance sheet at fair value i.e. $60 million.

Solution 4b:

Journal Entries - Fuzzy Monkey Technologies Inc.
Event	Date	Particulars	Debit (In Million)	Credit (In Million)
1	31-Dec-18	Fair value adjustment Dr ($60 - $55 - $0.10 - $0.10)	$4.80
		To Unrealized holding gain or loss - NI		$4.80
		(Being adjusting entry to record investment at fair value)

Solution 5:

Statement of cash flows (Partial) For 2018
Particulars	Amount (In million)
Cash flow from operating activities:
Interest revenue	$4.20
Cash flow from investing activities:
Cash paid for purchase of investment	-$55.00