Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $ 180 milli
ID: 2425422 • Letter: F
Question
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $ 180 million of 6% bonds, dated January 1, on January 1, 2016. Management intends to have the investment available for sale when circumstances warrant. For bonds of similar risk and maturity the market yield was 8%. The price paid for the bonds was $160 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 $170 million.
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).)
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).)
Prepare the 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).)
How would Fuzzy Monkey's 2016 statement of cash flows be affected by this investment? (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).)
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $ 180 million of 6% bonds, dated January 1, on January 1, 2016. Management intends to have the investment available for sale when circumstances warrant. For bonds of similar risk and maturity the market yield was 8%. The price paid for the bonds was $160 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 $170 million.
Explanation / Answer
Answer 1 Fuzzy Monkey Technologies, Inc Journal Entries for 2016 Date Particulars Debit Credit $ in Million $ in Million 01/01/2016 6% Bond 160 Cash 160 (Purchase of 6% bonds) 30/06/2016 Cash 4.8 Interest on Bond 4.8 (6 month Interest on Bond received) 31/12/2016 Cash 4.8 Interest on Bond 4.8 (6 month Interest on Bond received) Answer 2 As Investment in 6% bond are available for sale when circumstances warrant , its reporting in the December 31, 2016 Balance sheet should be at fair market value i.e at $170 million. Answer 3 Journal entry to record answer 2 Date Particulars Debit Credit $ in Million $ in Million 31/12/2016 6% Bond 10 Unrealised Gain / Loss 10 (Valuation of bonds at Fair market value) Answer 4 Statement of Cash Flow 2016 Cash Inflow / (Outflow) $ in Million 01/01/2016 Purchase of 6% bond -160 30/06/2016 Interest received on Bond 4.8 31/12/2016 Interest received on Bond 4.8 Net Cash Flow due to this Investment -150 There is Cash outflow of $150 Million in 2016 due to this Investment.
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