Question

Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $220 million of 8% bonds, dated January 1, on January 1, 2021. Management intends to include the investment in a short-term, active trading portfolio. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $201 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, 2021, was $210 million.

Answer 1

Answer and Explanation:

Journal Entries - Fuzzy Monkey Technologiesn Inc

Debit (In Million) Credit (In Million)

1. 1-Jan-21

Dr Investment in Bond $220.00

Cr To Cash $201.00

Cr To Discount on bond investment $19.00

(Being investment in bond recorded)

2. 30-Jun-21

Dr Cash ($220 *8% * 6/12) $8.80

Dr Discount on bond investment

$1.25

Cr To Interest revenue

($201*10%*6/12) $10.05

(Being revenue recoginition for bond interest and discount amortized)

3. 31-Dec-21

Dr Cash ($220 *8% * 6/12) $8.80

Dr Discount on bond investment $1.31

Cr To Interest revenue

($202.25*10%*6/12) $10.11

(Being revenue recoginition for bond interest and discount amortized)

4a:

Fuzzy monkey report its investment on December 31, 2021 balance sheet at fair value which is $210 million

4b:

Journal Entries - Fuzzy Monkey Technologies Inc.

Debit (In Million) Credit (In Million)

1 31-Dec-21

Dr Fair value adjustment ($210 - $201 - $1.25 - $1.31) $6.44

Cr To Unrealized holding gain or loss - OCI $6.44

(Being adjusting entry to record investment at fair value)

5:

Statement of cash flows (Partial)

For 2021

Amount (In million)

Cash flow from operating activities:

Interest received $17.60 Inflow

Cash flow from investing activities:

Cash paid for purchase of investment $201.00 Outflow