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27 March, 17:36

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $ 110 million of 10% bonds, dated January 1, on January 1, 2018. Management intends to have the investment available for sale when circumstances warrant. For bonds of similar risk and maturity the market yield was 12%. The price paid for the bonds was $94 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 $100 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 entry necessary to achieve this reporting objective. 5. How would Fuzzy Monkey's 2018 statement of cash flows be affected by this investment?

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  1. 27 March, 18:22
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    investment in bonds 110 millions

    discount on bonds 16 millions

    cash 94 millions

    to record purchase of bonds

    cash 5.5 million

    discount 0.14 millions

    interest revenue 5.64 millions

    to record cash proceeds on June 30th

    cash 5.5 million

    discount 0.1484 millions

    interest revenue 5.6484 millions

    to record cash proceeds on December 31th

    Investment on Bonds

    bonds 110,000,000

    discount (15, 711, 600‬)

    net 94,288,400‬

    Cash flow:

    Investing activities

    purchase of bonds (94 millions)

    proceeds from investmetn on bonds 11 millions

    Explanation:

    June 30th

    110 x 10% / 2 = 110 x 5% = 5.5 millions cash proceed

    94 x 12%/2 = 5.64 interest revenue

    0.14 amortization

    December 31th

    110 x 10% / 2 = 110 x 5% = 5.5 millions cash proceed

    94.14 x 0.06 = 5,6484‬

    0.1484 amortization

    Balance sheet:

    will post the carring value of the bonds

    Cash flow:

    Will report the cash used in the purchase

    and then, the cash proceed from the interest payment of June 30th December 31th
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