Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
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?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
I need help with part 4.
Please send answer as the chart
Prepare adjusting entry to record
fair value, and indicate statement
presentation.
E16.11 (LO 3), AP Financial Statement Writing At December 31, 2022, available-for-sale debt
securities for Storrer, Inc. are as follows. The securities are considered to be a long-term investment.
Fair Value
$16,000
14,000
21,000
$51,000
Security
A
B
с
Cost
$17,500
12,500
23,000
$53,000
Instructions
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. E. Kretsinger, a member of the board of directors, does not understand the reporting of the unreal-
ized gains or losses. Write a letter to Ms. Kretsinger explaining the reporting and the purposes that
it serves.
Chapter 12 Solutions
Intermediate Accounting
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...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Based on the information below, I have to prepare the adjusting entry at December 31, 2022 to report the securities at fair value. Thank you in advance!arrow_forwardExample 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.arrow_forwardNote:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forward
- 1. Assuming the investment is appropriately recognized as a financial asset intended to collect contractual cash flows and also to sell the bonds in open market: How much interest income is to be recognized in 2021?arrow_forwarddont give answer in image formatarrow_forwardP17-1. Please answer part d,e,f, and show all workings clearly.arrow_forward
- Requirement 2. Prepare a partial balance sheet for Thyme's Vince investment as of December 31, 2018. Use the partial balance sheet below to show how to report the investment on Thyme's balance sheet at December 31, 2018. (Use a minus sign or parentheses to enter a loss. If a box is not used in the balance sheet, leave the box empty; do not sect a label or enter a zero.)arrow_forward(Debt Investments) Presented below is information taken from a bond investment amortization schedule with related fair values provided. These bonds are classified as available-for-sale. 12/31/17 12/31/18 12/31/19 Amortized cost $491,150 $519,442 $550,000 Fair value 497,000 509,000 550,000 Instructions(a) Indicate whether the bonds were purchased at a discount or at a premium.(b) Prepare the adjusting entry to record the bonds at fair value at December 31, 2017. The Fair Value Adjustment account has a debit balance of $1,000 prior to adjustment.(c) Prepare the adjusting entry to record the bonds at fair value at December 31, 2018.arrow_forwardEH.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.arrow_forward
- Presented below is information taken from a bond investment amortization schedule with related fair values provided. These bonds are classified as available-for-sale. 12/31/20 12/31/21 12/31/22 Amortized cost $491,150 $519,442 $550,000 Fair value 497,000 509,000 550,000 Instructions a. Indicate whether the bonds were purchased at a discount or at a premium. b. Prepare the adjusting entry to record the bonds at fair value at December 31, 2020. The Fair Value Adjustment account has a debit balance of $1,000 prior to adjustment. c. Prepare the adjusting entry to record the bonds at fair value at December 31, 2021.arrow_forward10) Given the following Bond Amortization Table, answer the multiple choice question below the Table. Interest Unamortized DATE PMT Expense Amortization Amortization Carrying Value 1/1/2018 $ 45,242 $ 654,758 6/30/2018 $ 28,000 $ 12/31/2018 $ 28,000 $ 6/30/2019 $ 28,000 $ 12/31/2019 $ 28,000 $ 6/30/2020 $ 28,000 $ 40,505 $ 35,530 $ 32,738 $ 4,738 $ 659,495 4,975 $ 5,224 $ 32,975 $ 664,470 33,224 $ 33,485 $ 30,306 $ 669,694 5,485 $ 24,822 $ 675,178 33,759 $ 5,759 $ 19,063 $ 680,937 34,047 $ 34,349 $ 13,016 $ 6,667 $ 0.00 $ 12/31/2020 $ 28,000 $ 6,047 $ 686,984 6/30/2021 $ 28,000 $ 6,349 $ 693,333 12/31/2021 $ 28,000 $ 34,667 $ 6,667 $ 700,000 Question: If this bond were retired on January 1, 2021 at $690,000, then the journal entry on January 1, 2021 would show: A. Credit to Discount on Bond Payable in the amount of $3,016 B. Debit to Discount on Bond Payable in the amount of $3,016 C. Gain in the amount of $3,016 D. Loss in the amount of $3,016arrow_forwardThe following information is also available: 1. Current assets include cash P3,800, accounts receivables P18,500, note receivables (maturity date is on July 1, 2023) P10,000 and land P12,000. 2. Long term investments include a P4,600 investment in fair value though other comprehensive income securities that is expected to be sold in 2022 and a P9,000 investment in AllDay company bonds that are expected to be held until their December 31, 2029 maturity date. 3. Property and equipment include buildings costing P63,400, inventories costing P30,500 and equipment costing P29,600. 4. Intangible assets include patents that cost P8,200 and on which P2,300 amortization have accumulated, and treasury shares that costs P1,800. 5. Other assets include prepaid insurance (which expires on November 30, 2022) P2,900, sinking fund for bond retirement P7,000 and trademarks that cost P5,200 and on which P1,500 amortization has accumulated. 6. Current liabilities include accounts payable P19,400, bonds…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Financial instruments products; Author: fi-compass;https://www.youtube.com/watch?v=gvxozM3TUIg;License: Standard Youtube License