Answer:
A. 1-Jan-21
Dr Investment in Bond Dr $80.00
Cr To Cash $66.00
Cr To Discount on bond investment $14.00
B.30-Jun-21
Dr Cash $3.20
Dr Discount on bond investment $0.10
Cr To Interest revenue $3.30
C. 31-Dec-21
Dr Cash $3.20
Dr Discount on bond investment Dr $0.11
Cr To Interest revenue $3.31
D. $70 million Due to the change in market conditions
E. CASH FLOW FROM OPERATING ACTIVITIES:
Interest received $7.40 INFLOW
CASH FLOW FROM INVESTING ACTIVITIES:
Cash paid for purchase of investment -$66.00 OUTFLOW
Explanation:
a. Preparation of the journal entry to record Fuzzy Monkey's investment on January 1, 2021.
1-Jan-21
Dr Investment in Bond Dr $80.00
Cr To Cash $66.00
Cr To Discount on bond investment $14.00
(80-66)
(Being to record investment in bond )
b. Preparation of the journal entry by Fuzzy Monkey to record interest on June 30, 2021 (at the effective rate).
30-Jun-21
Dr Cash $3.20
($80 *8% * 6/12)
Dr Discount on bond investment $0.10
($3.30-$3.20)
Cr To Interest revenue $3.30
($66*10%*6/12)
(Being to record revenue recognition for bond interest and discount amortized)
c. Preparation of the journal entries by Fuzzy Monkey to record interest on December 31, 2021 (at the effective rate)
31-Dec-21
Dr Cash $3.20
($80 *8% * 6/12)
Dr Discount on bond investment Dr $0.11
($3.31- $3.20)
Cr To Interest revenue $3.31
[ $66+.1*(10%*6/12) ]
(Being to record revenue recognition for bond interest and discount amortized)
d. Based on the information given Fuzzy monkey will report its investment on December 31, 2021 balance sheet at fair value of the amount of $70 million reason been that we were told that because of the change in the market conditions, the fair value of the bonds at December 31, 2021, was the amount of $70 million.
e. Calculation for How would Fuzzy Monkey's 2021 statement of cash flows be affected by this investment
STATEMENT OF CASH FLOW (PARTIAL)
For 2021
CASH FLOW FROM OPERATING ACTIVITIES:
Interest received $7.40 INFLOW
($3.20+$3.20)
CASH FLOW FROM INVESTING ACTIVITIES:
Cash paid for purchase of investment -$66.00 OUTFLOW
