Question

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $110 million of 10% bonds, dated January 1, on January 1, 2016. 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 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, 2016, was $100 million.
Required: 1. to 3. 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 rounded to 2 decimal places, (i.e., 5,500,000 should be entered as 5.50).)

1.Record Fuzzy Monkey’s investment on bonds on January 1, 2016.

2.Record the interest revenue on June 30, 2016.

3.Record the interest revenue on December 31, 2016.

4.1 At what amount will Fuzzy Monkey report its investment in the December 31, 2016, balance sheet? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places, (i.e., 5,500,000 should be entered as 5.50).)

4.2 Prepare the journal entry necessary to achieve this reporting objective. (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 rounded to 2 decimal places, (i.e., 5,500,000 should be entered as 5.50).)

5. How would Fuzzy Monkey’s 2016 statement of cash flows be affected by this investment assuming Fuzzy anticipates holding these investments for a sufficiently long period? (Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).)

Answer 1

Answer

1. Attached as table in excel document.

2. Attached as table in excel document.

3. Attached as table in excel document.  

4. 1Fuzzy Monkey will report its investment at its fair value of $100 million

4.2.  Attached as table in excel document.  

5.  Attached as table in excel document.  

The answer and procedures of the exercise are attached in a microsoft excel document.  

Explanation  

Please consider the data provided by the exercise. All the exercises are solved in a single sheet with the formulas indications.

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