This problem is a variation of P12–1, modified to categorize the investment as trading securities.]Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $80 million of 8% bonds, datedJanuary 1, on January 1, 2018. Management intends to include the investment in a short-term, active tradingportfolio. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, thefair value of the bonds at December 31, 2018, was $70 million.Required:1. Prepare the journal entry to record Fuzzy Monkey’s investment on January 1, 2018.2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2018 (at the effective rate).3. Prepare the journal entries by Fuzzy Monkey to record interest on December 31, 2018 (at the effective rate).4. At what amount will Fuzzy Monkey report its investment in the December 31, 2018, balance sheet? Why?Prepare any entry necessary to achieve this reporting objective.5. How would Fuzzy Monkey’s 2018 statement of cash flows be affected by this investment?
This problem is a variation of P12–1, modified to categorize the investment as trading securities.]
Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $80 million of 8% bonds, dated
January 1, on January 1, 2018. 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 $66
million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the
fair
Required:
1. Prepare the
2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2018 (at the effective rate).
3. Prepare the journal entries by Fuzzy Monkey to record interest on December 31, 2018 (at the effective rate).
4. At what amount will Fuzzy Monkey report its investment in the December 31, 2018, balance sheet? Why?
Prepare any entry necessary to achieve this reporting objective.
5. How would Fuzzy Monkey’s 2018 statement of cash flows be affected by this investment?
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