Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy. Held-to-maturity security : The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities. Trading securities : These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices. Fair value : Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer. Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system. Debit and credit rules: Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts. Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts. To Explain: How to classify this investment on Company T’s balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other.

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This problem is a variation of P 12–3, modified to cause the investment to be accounted for under the fair value option.]Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2018. Management intends to have the investment available for sale when circumstanceswarrant. When the company purchased the bonds, management elected to account for them under the fair valueoption. 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,…

Answer 1

Question

Chapter 12, Problem 12.25E

1.

To determine

Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy.

Held-to-maturity security: The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities.

Trading securities: These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.

Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To Explain: How to classify this investment on Company T’s balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other.

2.

To determine

To journalize: The purchase $240,000,000 of 6% bonds in the books of Company T.

3.

To determine

To journalize: The receipt of semiannual interest on December 31, 2018 in the books of Company T.

4.

To determine

To journalize: The fair value changes to be recorded in the books of Company T.

5.

To determine

To indicate: The amount of investment value as on December 31, 2018 in the books of Corporation T

6.

To determine

To journalize: The adjusting entry as at December 31, 2018, if the fair value adjustment was $9,200,000, fair value of shares was $200,00,000, and the cost of shares was $240,000,000.

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This problem is a variation of P 12–3, modified to cause the investment to be accounted for under the fair value option.]Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2018. Management intends to have the investment available for sale when circumstanceswarrant. When the company purchased the bonds, management elected to account for them under the fair valueoption. 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,…

Fuzzy Monkey Technologies, Incorporated purchased as a long-term investment $220 million of 8% bonds, dated January 1, on January 1, 2024. Management has the positive intent and ability to hold the bonds until maturity. 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, 2024, was $210 million. Required: 1. to 3. 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, 2024 balance sheet? 5. How would Fuzzy Monkey's 2024 statement of cash flows be affected by this investment? (If more than one approach is possible, indicate the one that is most likely.)

Exercise 12-26 (Algo) Fair value option; available-for-sale investments [L012-2, 12-3, 12-8] Colah Company purchased $3,000,000 of Jackson, Inc., 5% bonds at their face amount on July 1, 2021, with interest paid semi- annually. The bonds mature in 20 years but Cola planned to keep them for less than 3 years, and classified them as available for sale investments. When the bonds were acquired Cola decided to elect the fair value option for accounting for its investment. At December 31, 2021, the Jackson bonds had a fair value of $3,400,000. Cola sold the Jackson bonds on July 1. 2022 for $2.700.000. a. The purchase of the Jackson bonds on July 1. b. Interest revenue for the last half of 2021. c. Any year-end 2021 adjusting entries. d. Interest revenue for the first half of 2022. e. Any entry or entries necessary upon sale of the Jackson bonds on July 1, 2022. Required: 1. Prepare Colah's journal entries for above transactions. 2. Complete the following table to show the effect of the…

Answer 2

Question

Chapter 12, Problem 12.25E

1.

To determine

Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy.

Held-to-maturity security: The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities.

Trading securities: These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.

Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To Explain: How to classify this investment on Company T’s balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other.

2.

To determine

To journalize: The purchase $240,000,000 of 6% bonds in the books of Company T.

3.

To determine

To journalize: The receipt of semiannual interest on December 31, 2018 in the books of Company T.

4.

To determine

To journalize: The fair value changes to be recorded in the books of Company T.

5.

To determine

To indicate: The amount of investment value as on December 31, 2018 in the books of Corporation T

6.

To determine

To journalize: The adjusting entry as at December 31, 2018, if the fair value adjustment was $9,200,000, fair value of shares was $200,00,000, and the cost of shares was $240,000,000.

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Answer 3

Question

Chapter 12, Problem 12.25E

1.

To determine

Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy.

Held-to-maturity security: The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities.

Trading securities: These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.

Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To Explain: How to classify this investment on Company T’s balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other.

2.

To determine

To journalize: The purchase $240,000,000 of 6% bonds in the books of Company T.

3.

To determine

To journalize: The receipt of semiannual interest on December 31, 2018 in the books of Company T.

4.

To determine

To journalize: The fair value changes to be recorded in the books of Company T.

5.

To determine

To indicate: The amount of investment value as on December 31, 2018 in the books of Corporation T

6.

To determine

To journalize: The adjusting entry as at December 31, 2018, if the fair value adjustment was $9,200,000, fair value of shares was $200,00,000, and the cost of shares was $240,000,000.

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Answer 4

Question

Chapter 12, Problem 12.25E

1.

To determine

Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy.

Held-to-maturity security: The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities.

Trading securities: These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.

Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To Explain: How to classify this investment on Company T’s balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other.

2.

To determine

To journalize: The purchase $240,000,000 of 6% bonds in the books of Company T.

3.

To determine

To journalize: The receipt of semiannual interest on December 31, 2018 in the books of Company T.

4.

To determine

To journalize: The fair value changes to be recorded in the books of Company T.

5.

To determine

To indicate: The amount of investment value as on December 31, 2018 in the books of Corporation T

6.

To determine

To journalize: The adjusting entry as at December 31, 2018, if the fair value adjustment was $9,200,000, fair value of shares was $200,00,000, and the cost of shares was $240,000,000.

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Answer 5

Chapter 12, Problem 12.25E

1.

To determine

Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy.

Held-to-maturity security: The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities.

Trading securities: These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.

Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To Explain: How to classify this investment on Company T’s balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other.

2.

To determine

To journalize: The purchase $240,000,000 of 6% bonds in the books of Company T.

3.

To determine

To journalize: The receipt of semiannual interest on December 31, 2018 in the books of Company T.

4.

To determine

To journalize: The fair value changes to be recorded in the books of Company T.

5.

To determine

To indicate: The amount of investment value as on December 31, 2018 in the books of Corporation T

6.

To determine

To journalize: The adjusting entry as at December 31, 2018, if the fair value adjustment was $9,200,000, fair value of shares was $200,00,000, and the cost of shares was $240,000,000.

Answer 6

Chapter 12, Problem 12.25E

1.

To determine

Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy.

Held-to-maturity security: The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities.

Trading securities: These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.

Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To Explain: How to classify this investment on Company T’s balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other.

Answer 7

Chapter 12, Problem 12.25E

1.

To determine

Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy.

Held-to-maturity security: The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities.

Trading securities: These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.

Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To Explain: How to classify this investment on Company T’s balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other.

Answer 8

2.

To determine

To journalize: The purchase $240,000,000 of 6% bonds in the books of Company T.

Answer 9

2.

To determine

To journalize: The purchase $240,000,000 of 6% bonds in the books of Company T.

Answer 10

3.

To determine

To journalize: The receipt of semiannual interest on December 31, 2018 in the books of Company T.

Answer 11

3.

To determine

To journalize: The receipt of semiannual interest on December 31, 2018 in the books of Company T.

Answer 12

4.

To determine

To journalize: The fair value changes to be recorded in the books of Company T.

Answer 13

4.

To determine

To journalize: The fair value changes to be recorded in the books of Company T.

Answer 14

5.

To determine

To indicate: The amount of investment value as on December 31, 2018 in the books of Corporation T

Answer 15

5.

To determine

To indicate: The amount of investment value as on December 31, 2018 in the books of Corporation T

Answer 16

6.

To determine

To journalize: The adjusting entry as at December 31, 2018, if the fair value adjustment was $9,200,000, fair value of shares was $200,00,000, and the cost of shares was $240,000,000.

Answer 17

6.

To determine

To journalize: The adjusting entry as at December 31, 2018, if the fair value adjustment was $9,200,000, fair value of shares was $200,00,000, and the cost of shares was $240,000,000.

Answer 18

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Ch. 12 - All investments in debt securities are classified...Ch. 12 - When market rates of interest rise after a...Ch. 12 - Does GAAP distinguish between fair values that are...Ch. 12 - When a debt investment is acquired to be held for...Ch. 12 - Prob. 12.5Q Ch. 12 - What is comprehensive income? Its composition...Ch. 12 - Why are holding gains and losses treated...Ch. 12 - Prob. 12.8Q Ch. 12 - Prob. 12.9Q Ch. 12 - Prob. 12.10Q

To journalize: The purchase $240,000,000 of 6% bonds in the books of Company T.

To journalize: The receipt of semiannual interest on December 31, 2018 in the books of Company T.

To journalize: The fair value changes to be recorded in the books of Company T.

To indicate: The amount of investment value as on December 31, 2018 in the books of Corporation T

To journalize: The adjusting entry as at December 31, 2018, if the fair value adjustment was $9,200,000, fair value of shares was $200,00,000, and the cost of shares was $240,000,000.

Chapter 12 Solutions