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23 February, 01:31

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.

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  1. 23 February, 01:39
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    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
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