Week 1 Assignment 1 - P 12-1 Fuzzy Monkey Technologies,...

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P12-1 Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011. 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, 2011, was $70 million. Required: 1. Prepare the journal entry to record Fuzzy Monkey’s investment on January 1, 2011. 2. Investment in Bond $80,000,000 Cash $66,000,000 Discount on bond investment $14,000,000 2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2011 (at the effective) Cash $3,200,000 Investment Revenue $3,200,000 3. Prepare the journal entries by Fuzzy Monkey to record interest on December 31, 2011 (at the effective rate). Cash $3,200,000 Investment Revenue $3,200,000 P12-7 Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities intending to earn profits on short-term differences in price. The following selected transactions relate to Amalgamated’s investment activities during the last quarter of 2011 and the first month of 2012. The only securities held by Amalgamated at October 1 were $30 million of 10% bonds of Kansas Abstractors, Inc., purchased on May 1 at face value. The company’s fiscal year ends on December 31.
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2011 Oct. 18Purchased 2 million preferred shares of Millwork Ventures Company for $58 million as a speculative investment to be sold under suitable circumstances. Investment in Shares $58,000,000 Cash $58,000,000 Oct. 31 Received semiannual interest of $1.5 million from the Kansas Abstractors bonds. Cash $1,500,000 Investment Revenue $1,500,000 Nov.1 Purchased 10% bonds of Holistic Entertainment Enterprises at their $18 million face value, to be held until they mature in 2018. Semiannual interest is payable April 30 and October 31. Investment in Bonds18,000,000 Cash 18,000,000 Nov. 1 Sold the Kansas Abstractors bonds for $28 million because rising interest rates are expected to cause their fair value to continue to fall. Cash 28,000,000 Investment in bonds 10,000,000 Discount on bonds 18,000,000 Dec. 1 Purchased 12% bonds of Household Plastics Corporation at their $60 million face value, to be held until they mature in 2028. Semiannual interest is payable May 31 and November 30. Investment in Bonds60,000,000
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Week 1 Assignment 1 - P 12-1 Fuzzy Monkey Technologies,...

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