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 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, 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?
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 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, 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?
Solution Summary: The author explains the rules of debiting and crediting different accounts while they occur in business transactions to abide by the double-entry system.
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 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, 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?
Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.
Cullumber Company uses a job order cost system and applies overhead to production on the basis of direct labor costs. On January 1,
2025, Job 50 was the only job in process. The costs incurred prior to January 1 on this job were as follows: direct materials $16,800,
direct labor $10,080, and manufacturing overhead $13,440. As of January 1, Job 49 had been completed at a cost of $75,600 and was
part of finished goods inventory. There was a $12,600 balance in the Raw Materials Inventory account on January 1.
During the month of January, Cullumber Company began production on Jobs 51 and 52, and completed Jobs 50 and 51. Jobs 49 and
50 were sold on account during the month for $102,480 and $132,720, respectively. The following additional events occurred during
the month.
1.
Purchased additional raw materials of $75,600 on account.
2.
Incurred factory labor costs of $58,800.
3.
Incurred manufacturing overhead costs as follows: depreciation expense on equipment $10,080; and various other…
Cullumber Company uses a job order cost system and applies overhead to production on the basis of direct labor costs. On January 1,
2025, Job 50 was the only job in process. The costs incurred prior to January 1 on this job were as follows: direct materials $16,800,
direct labor $10,080, and manufacturing overhead $13,440. As of January 1, Job 49 had been completed at a cost of $75,600 and was
part of finished goods inventory. There was a $12,600 balance in the Raw Materials Inventory account on January 1.
During the month of January, Cullumber Company began production on Jobs 51 and 52, and completed Jobs 50 and 51. Jobs 49 and
50 were sold on account during the month for $102,480 and $132,720, respectively. The following additional events occurred during
the month.
1.
Purchased additional raw materials of $75,600 on account.
2.
Incurred factory labor costs of $58,800.
3.
Incurred manufacturing overhead costs as follows: depreciation expense on equipment $10,080; and various other…
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