Question
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $120 million of 6% bonds, dated January...
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $120 million of 6% bonds, dated January 1 on January 1 2018 Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 8%. The price paid for the bonds was $100 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, 2018, was $110 million Required: 1. to 2. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate) 4. At what amount will Fuzzy Monkey report its investment in the December 31, 2018, balance sheet? 3. How would Fuzzy Monkey's 2018 statement of cash flows be affected by this investment?
Answers
Date General Journal Debit Credit 1-Jan Investment in bonds 120 Discount on bond investment 20 Cash 100 Date Cash Interest @ 3% * 120000000 Effective interest @ 4% * Balance Discount amortiziation Balance 1-Jan 100000000 30-Jun 3600000 4000000 400000 100400000 31-Dec 3600000 4016000 416000 100816000 30-Jun Cash 3600000 Discount on bond Investment 400000 Interest revenue 4000000 31-Dec Cash 3600000 Discount on bond Investment 416000 Interest revenue 4016000 Investment in bonds 120,000,000 Discount on bonds 1/1 Value 20000000 6/30 amortization -400000 12/31 Amortization -416000 -19184000 Unamortized cost 100816000
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