Question

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment S90 million of 6% bonds, dated January t on January 1, 2018. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yileld was 8%. The price paid for the bonds was $73 million. Interest is received semiannually on June 30 and December St Oue to changing market conditions, the fair value of the bonds at December 31, 2018, was $80 million. Required: 1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). 4. At what amount will Fuzzy Monkey report its 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 Reqto3 Req Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). (If no entry is required for a answers in millions rounded to 2 decimal places, (i.e,5,500,000 should be entered as 5.50).) Req 5 t, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your Journal entry worksheet Record Fuzzy Monkey's investment on bonds on January 1, 2018. Note: Enber debits before credits January 01, 2018 Record entry iew gener

Answer 1

	Bonds Amortization table
Date	Cash Received @ 3% (semiannual rate)	Interest revenue @4%	Amortization of Bond Discount	Carrying amount of bond
1/1/2018				$73,000,000
6/30/2018	$2,700,000	$2,920,000	$220,000	$73,220,000
12/31/2018	$2,700,000	$2,928,800	$228,800	$73,448,800
	Journal Entries
Date	Description	Debit	Credit
1/1/2018	Investment in Bonds	$73,000,000
	Cash		$73,000,000
	(To record investment on bond at discount)
6/30/2018	Cash	$2,700,000
	Investment in Bonds	$220,000
	Interest revenue		$2,920,000
	(To record semiannual interest revenue received)
12/31/2018	Cash	$2,700,000
	Investment in Bonds	$228,800
	Interest revenue		$2,928,800
	(To record semiannual interest revenue received)
4	As this investment in bonds is long term investment held to maturity, this investment
	will be reported at amortized value
	Long term Investment	$73,448,800
5	Fuzzy Monkey's Statement of cash flow
	Operating cashflow	$5.4 million	Interest revenue
	Investing Cash Flow	$73 million	Long term Investment