Fuzzy Monkey Technologies, Inc purchased as a shor-term investment $190 million
ID: 2539149 • Letter: F
Question
Fuzzy Monkey Technologies, Inc purchased as a shor-term investment $190 million of 8% bonds, dated January 1, on January 1, 2016. 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 $169 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 $180 million. Required: 1. to Prepare the relevant journal entries on the respective dates 3. (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).)Explanation / Answer
Date
General Journal
Debit
Credit
1, Jan
Investment in bonds
190m
Discount on bond
investment
21m
Cash
169m
Date
Cash interest @4% x 190000000
Effective interest @5% x balance
Discount Amortization
Balance
Jan 1 2016
169000000
June 30 2016
7600000
8450000
850000
169850000
Dec 31 2018
7600000
8492500
892500
170742500
Date
General Journal
Debit
Credit
30, June
Cash
7600000
Discount on bond
investment
850000
Investment Revenue
8450000
31, Dec
Cash
760000
Discount on bond
investment
892500
Investment Revenue
8492500
Investment in bonds
190000000
Discount on Bonds:
1/1 Value
21000000
6/30 Amortization
(850000)
12/31 Amortization
(892500)
(19257500)
Balance on 12/31
170742500
Fair value on 12/31
180000000
Fair Value Adjustment
9257500
General Journal
Debit
Credit
Fair Value Adjustment
9257500
Net Unrealized holding gain and losses
9257500
Impact of Statement of Cash Flows:
SOCF Section
Amount
Inflow/Outflow
Operating Activities
15200000
Inflow
Investing Activities
169000000
Outflow
Financing Activities
None
Date
General Journal
Debit
Credit
1, Jan
Investment in bonds
190m
Discount on bond
investment
21m
Cash
169m
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