GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD
9th Edition
ISBN: 9781260089042
Author: J. David Spiceland
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 12, Problem 12.3P
Securities available-for-sale; bond investment; effective interest
• LO 12-1, LO12-4
(Note: This problem is a variation of P12–1, modified to categorize the investment as securities available-for-sale.)
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 circumstances warrant. 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
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?
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Students have asked these similar questions
Problem 12-3 (Algo) Securities available-for-sale; bond investment; effective interest; financial
statement effects [LO12-1, 12-4]
Fuzzy Monkey Technologies, Incorporated purchased as a long-term investment $60 million of 6% bonds, dated January 1, on Janua
1, 2024. Management intends to have the investment available for sale when circumstances warrant. For bonds of similar risk and
maturity the market yield was 8%. The price paid for the bonds was $46 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 $50 million.
Required:
1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate).
4-6. At what amount will Fuzzy Monkey report its investment in the December 31, 2024, balance sheet?
4-b. Prepare the entry necessary to achieve this reporting objective.
5. How would Fuzzy Monkey's 2024 statement of cash flows be affected by…
EH.7 (LO 3), AP Writing At December 31, 2022, available-for-sale debt securities for Gwynn, Inc. are as follows. The securities are
considered to be a long-term investment.
Instructions
Security
A
B
C
Total
Cost
$18,100
12,500
23,000
$53,600
Fair Value
$16,000
14,800
18,000
$48,800
a. Prepare the adjusting entry at December 31, 2022, to report the securities at fair value.
b. Show the statement presentation at December 31, 2022, after adjustment to fair value.
c. Pam Jenks, a member of the board of directors, does not understand the reporting of the unrealized gains or losses on trading
debt securities and available-for-sale debt securities. Write a letter to Ms. Jenks explaining the reporting and the purposes it
serves.
Example 2)
Fair value through profit or loss: Debt investment
ABC Co. had the following transactions pertaining its trading investments:
Feb. 1, 2021
Purchased $200,000 of 3-year, 6% bonds at 104. Interest is payable on each August
1 and February 1.
Aug. 1, 2021
Received interest on the bonds.
Dec. 31, 2021
The fair value of the bonds was 100.
Instruction:
Record the above transactions, using the fair value through profit or loss model. Also, prepare any
required adjusting entry/entries at December 31, 2021. ABC Co. has a December 31 year-end.
Chapter 12 Solutions
GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD
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. 12.5QCh. 12 - What is comprehensive income? Its composition...Ch. 12 - Why are holding gains and losses treated...Ch. 12 - Prob. 12.8QCh. 12 - Prob. 12.9QCh. 12 - Prob. 12.10Q
Ch. 12 - Under IFRS No. 9, which reporting categories are...Ch. 12 - Prob. 12.12QCh. 12 - Do U.S. GAAP and IFRS differ in the amount of...Ch. 12 - Under what circumstances is the equity method used...Ch. 12 - The equity method has been referred to as a...Ch. 12 - In the application of the equity method, how...Ch. 12 - Prob. 12.17QCh. 12 - Prob. 12.18QCh. 12 - Prob. 12.19QCh. 12 - How does IFRS differ from U.S. GAAP with respect...Ch. 12 - What is the effect of a company electing the fair...Ch. 12 - Define a financial instrument. Provide three...Ch. 12 - Some financial instruments are called derivatives....Ch. 12 - (Based on Appendix 12A) Northwest Carburetor...Ch. 12 - Prob. 12.25QCh. 12 - Prob. 12.26QCh. 12 - (Based on Appendix 12B) Reporting an investment at...Ch. 12 - Prob. 12.28QCh. 12 - Explain how the CECL model (introduced in ASU No....Ch. 12 - Prob. 12.30QCh. 12 - Prob. 12.1BECh. 12 - Prob. 12.2BECh. 12 - Trading securities LO12-3 For the Coca-Cola bonds...Ch. 12 - Available -for-sale securities LO12-4 SL...Ch. 12 - Available -for-sale securities LO12-4 For the...Ch. 12 - Prob. 12.6BECh. 12 - Prob. 12.7BECh. 12 - Prob. 12.8BECh. 12 - Prob. 12.9BECh. 12 - Prob. 12.10BECh. 12 - Equity investments and dividends LO12-5 Turner...Ch. 12 - Prob. 12.12BECh. 12 - Prob. 12.13BECh. 12 - Equity method investments LO12-6, LO12-9 Kim...Ch. 12 - Change in principle; change to the equity method ...Ch. 12 - Fair value option; equity method investments ...Ch. 12 - Prob. 12.17BECh. 12 - Impairments (AFS Credit Loss Model) (Appendix 12B)...Ch. 12 - Prob. 12.19BECh. 12 - Prob. 12.20BECh. 12 - Prob. 12.1ECh. 12 - Prob. 12.2ECh. 12 - Securities held-to-maturity LO12-1 FFT...Ch. 12 - Prob. 12.4ECh. 12 - Prob. 12.5ECh. 12 - Trading securities LO12-1 [This is a variation of...Ch. 12 - Various transactions relating to trading...Ch. 12 - Prob. 12.8ECh. 12 - Securities available-for-sale; adjusting entries ...Ch. 12 - Available -for-sale securities LO12-1, LO12-4...Ch. 12 - Available -for-sale securities LO12-1, LO12-4...Ch. 12 - Available -for-sale securities LO12-1, LO12-4...Ch. 12 - Classification of securities; adjusting entries ...Ch. 12 - Prob. 12.14ECh. 12 - Equity investments; fair value through net income ...Ch. 12 - Equity investments; fair value through net income ...Ch. 12 - Prob. 12.17ECh. 12 - Equity investments; fair value through net income ...Ch. 12 - Investment securities and equity method...Ch. 12 - Equity method; purchase; investee income;...Ch. 12 - Error corrections; equity method investment ...Ch. 12 - Prob. 12.22ECh. 12 - Prob. 12.23ECh. 12 - Prob. 12.24ECh. 12 - Prob. 12.25ECh. 12 - Prob. 12.26ECh. 12 - Prob. 12.27ECh. 12 - Prob. 12.28ECh. 12 - Prob. 12.29ECh. 12 - Prob. 12.30ECh. 12 - Prob. 12.31ECh. 12 - Prob. 12.32ECh. 12 - Accounting for impairments under IFRS (Appendix...Ch. 12 - Prob. 12.1PCh. 12 - Prob. 12.2PCh. 12 - Securities available-for-sale; bond investment;...Ch. 12 - Prob. 12.4PCh. 12 - Various transactions related to trading securities...Ch. 12 - Various transactions related to securities...Ch. 12 - Prob. 12.7PCh. 12 - Various transactions relating to trading...Ch. 12 - Securities held-to-maturity; securities available...Ch. 12 - Investment securities and equity method...Ch. 12 - Prob. 12.11PCh. 12 - Prob. 12.12PCh. 12 - Prob. 12.13PCh. 12 - Equity method LO12-6, LO12-7 On January 2, 2018,...Ch. 12 - Prob. 12.15PCh. 12 - Prob. 12.16PCh. 12 - Accounting for debt and equity investments ...Ch. 12 - Prob. 12.18PCh. 12 - Real World Case 121 Intels investments LO12-4 The...Ch. 12 - Prob. 12.2BYPCh. 12 - Prob. 12.4BYPCh. 12 - Prob. 12.6BYPCh. 12 - Real World Case 127 Comprehensive income Microsoft...Ch. 12 - Continuing Cases Target Case LO12-4, LO12-6...
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