Question

Problem 12-4 Fair value option; bond investment; effective interest (LO12-1, 12-2, 12-3, 12-4, 12-8] 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. When the company purchased the bonds. management elected to account for them under the fair value option. 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 journal entry necessary to achieve this reporting objective. 5. How would Fuzzy Monkey's 2018 statement of cash flows be affected by this investment assuming Fuzzy anticipates holding these investments for a sufficiently long period? Complete this question by entering your answers in the tabs below. Reg 1 to 3 Reg 4A Reg 4B Reg 5 Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in millions founded to 2 decimal places, i.e., 5,500,000 should be entered as 5.50) View transaction list Journal entry worksheet 2 3 Record Fuzzy Monkey's investment on bonds on January 1, 2018 Note: Enter debits before credits. General Journal Debit Credit Date January 01, 2018 View general journal Clear entry Record entry Reg 4A >

Answer 1

credit Date General Journal Jani Unvestments in AFS Securities Discount on Bond investment Cash Debit 80 000 000 14000000 66000 000 June 30 Cash Discount on Bond Investment lavestment revenell 3200000 10oooo 3300000 Decall cash 3200000 105000 Discount on bond investment lavestmeat Revenue 3305000 Decall 3795000 Fair value adjustment - AFS Net Chrealized holding goins and closses ($70 000 000 - $66 205000=83795000) 3795000

Disclosure on Balance shut Construction forms corporation Balance sheet (Partial) 31-Dec-18 Investment in AFS eccritics 800000oo. Add: fair value adjustment 3795000 esse Discount on bond investments 13795000 70000000 Impact of statement of cash flows I Sock section Amonat claflow/outflow operating Activities 6400000 laflow Chresting activities 66000000 outflow Financing activities None