ACC306WEEK1ASSGN - P 12-1 Securities held-to-maturity; bond...

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P 12-1 Securities held-to-maturity; bond investment; effective interest 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. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2011 (at the effective rate). 3. Prepare the journal entries by Fuzzy Monkey to record interest on December 31, 2011 (at the effective rate). 4. At what amount will Fuzzy Monkey report its investment in the December 31, 2011, balance sheet? Why? 5. How would Fuzzy Monkey's 2011 statement of cash flows be affected by this investment? January 1 Investments in AFS securities 80,000,000 Discount on Bond Investment 14,000,000 Cash 66,000,000 June 30 cash 3,200,000 Discount on Bond Investment 100,000 Investment revenue 3,300,000 December 31 cash 3,200,000 Discount on bond investment 105,000 Investment revenue 3,305,000 $70,000,000 - $66,205,000 = $3,795,000 December 31 fair value adjustment – AFS 3,795,000 Net unrealized holding gains and losses 3,795,000 Disclosure on Balance sheet Because these are trading securities, the unrealized holding gain of $3.79 would be recognized in Fuzzy Monkey’s 2009 income statement. Construction Forms Corporation Balance Sheet (Partial) 31-Dec-11
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Investment in AFS securities 80,000,000 Add: fair value adjustment 3,795,000 Less: discount on bond investments 13,795,000 70,000,000 Impact of Statement of Cash Flows SOCF Section Amount Inflow/Outflow Operating Activities $6,400,000 Inflow Investing Activities $66,000,000 Outflow Financing Activities $ - None 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. 2011 Oct. 18 Purchased 2 million preferred shares of Millwork Ventures Company for $58 million as a speculative investment to be sold under suitable circumstances. Oct. 31 Received semiannual interest of $1.5 million from the Kansas Abstractors bonds.
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ACC306WEEK1ASSGN - P 12-1 Securities held-to-maturity; bond...

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