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Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2016. 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 $66 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, 2016, was $70 million. Required: 1. Prepare the journal entry to record Fuzzy Monkey's investment on January 1, 2016. 2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2016 (at the effective rate). 3. Prepare the journal entry by Fuzzy Monkey to record interest on December 31, 2016 (at the effective rate). 4. At what amount will Fuzzy Monkey report its investment in the December 31, 2016, balance sheet? Why? 5. How would Fuzzy Monkey's 2016 statement of cash flows be affected by this investment?

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2016. 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 $66 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, 2016, was $70 million. Required: 1. Prepare the journal entry to record Fuzzy Monkey's investment on January 1, 2016. 2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2016 (at the effective rate). 3. Prepare the journal entry by Fuzzy Monkey to record interest on December 31, 2016 (at the effective rate). 4. At what amount will Fuzzy Monkey report its investment in the December 31, 2016, balance sheet? Why? 5. How would Fuzzy Monkey's 2016 statement of cash flows be affected by this investment?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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please, assist me with solving the problem attached, I am particularly interested in solving 3 and 4.  

Thank you,

Milena

 

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2016. 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 $66 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, 2016, was $70 million. Required: 1. Prepare the journal entry to record Fuzzy Monkey's investment on January 1, 2016. 2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2016 (at the effective rate). 3. Prepare the journal entry by Fuzzy Monkey to record interest on December 31, 2016 (at the effective rate). 4. At what amount will Fuzzy Monkey report its investment in the December 31, 2016, balance sheet? Why? 5. How would Fuzzy Monkey's 2016 statement of cash flows be affected by this investment?
Transcribed Image Text:Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2016. 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 $66 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, 2016, was $70 million. Required: 1. Prepare the journal entry to record Fuzzy Monkey's investment on January 1, 2016. 2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2016 (at the effective rate). 3. Prepare the journal entry by Fuzzy Monkey to record interest on December 31, 2016 (at the effective rate). 4. At what amount will Fuzzy Monkey report its investment in the December 31, 2016, balance sheet? Why? 5. How would Fuzzy Monkey's 2016 statement of cash flows be affected by this investment?
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