Question

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $170 million of 10% bonds, dated January 1, on January 1, 2021. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 12%. The price paid for the bonds was $151 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 $160 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, 2021 balance sheet

Answer 1

Fuzzy Monkey Technologies Inc.

Journal Entries

Date Particulars Debit'Million Credit'Million

1-Jan-18 Investment in Bond $170.00

To Cash $151.00

To Discount on bond investment $19.00

(Being investment in bond recorded)

30-Jun-18 Cash $8.50

($170 *10% * 6/12)

Discount on bond investment $0.56

To Interest revenue $9.06

($151*12%*6/12)

(Being revenue recognition for bond

interest and discount amortized)

31-Dec-18 Cash $8.50

($170 *10% * 6/12)

Discount on bond investment $0.59

To Interest revenue $9.09

(Being revenue recognition for bond

interest and discount amortized)

4. Fuzzy monkey report its investment on 31.12.2018 balance sheet at amortized cost:

= $151 + $0.56 + $0.59

= $152.15 million