Problem 12–2
Requirement 1 ($ in millions)
Requirement 2
Requirement 3
Requirement 4
Fuzzy Monkey reports its investment in the December 31, 2018, balance
sheet at its fair value, $70 million in this case. For investments in trading
securities, changes in market values, and thus market returns, provide an
indication of management’s success in deciding when to acquire the
investment, when to sell it, whether to invest in fixed-rate or variable-rate
securities, and whether to invest in long-term or short-term securities.
To do this, we first need to determine the investment’s amortized cost (or
book value) at the end of the year:
Thus, Fuzzy Monkey needs to move from a fair-value adjustment of $0 to
$3.79:
Problem 12–2 (concluded)
Fair-Value
Adjustment
1/1/2018 0
would be recognized in Fuzzy Monkey’s 2018 income statement.
Requirement 5
Fuzzy Monkey’s 2018 statement of cash flows would be affected as
follows:
Operating activities cash flows: Cash inflow from interest of
indirect method statement of cash flows, it would have interest
Fuzzy Monkey would also be likely to treat the cash outflow
Fair Value
Adjustment
Balance on 1/1/2018 $0
± Adjustment needed to update fair value ?
Balance needed on 12/31/2018 ($70 – 66.21) $3.79
Problem 12–3
Requirement 1 ($ in millions)
Requirement 2
Requirement 3
Requirement 4
Fuzzy Monkey reports its investment in the December 31, 2018, balance
sheet at its fair value, $70 million in this case. For investments in securities
available-for-sale, changes in market values, and thus market returns,
provide an indication of management’s success in deciding when to acquire
the investment, when to sell it, whether to invest in fixed-rate or
variable-rate securities, and whether to invest in long-term or short-term
securities.
To do this, we first need to determine the investment’s amortized cost (or
book value) at the end of the year:
Thus, Fuzzy Monkey needs to move from a fair-value adjustment of $0 to
$3.79:
Problem 12–3 (concluded)
Fair-Value
Adjustment
1/1/2018 0
Because these are securities available for sale, the unrealized holding gain of
$3.79 would be recognized in Fuzzy Monkey’s 2018 other comprehensive
income. They only would be recognized in net income in the period in
which they are sold.
Requirement 5
Fuzzy Monkey’s 2018 statement of cash flows would be affected as
follows:
Operating activities cash flows: Cash inflow from interest of
Investing activities cash flows: Cash outflow from purchasing
investments of $66.
Fair Value
Adjustment
Balance on 1/1/2018 $0
± Adjustment needed to update fair value ?
Balance needed on 12/31/2018 ($70 – 66.21) $3.79
Problem 12–4
Note: Because Fuzzy Monkey elected the fair value option, these investments will
be accounted for similar to trading securities. Therefore, the answers to
Requirements 1–5 are the same as those to Problem 12–2.
Requirement 1 ($ in millions)
Requirement 2
Requirement 3
Requirement 4
Fuzzy Monkey reports its investment in the December 31, 2018, balance
sheet at its fair value, $70 million in this case.
To determine the journal entry that Fuzzy Monkey must make, we first need
to determine the investment’s amortized cost (or book value) at the end of
the year:
Thus, Fuzzy Monkey needs to move from a fair-value adjustment of $0 to
$3.79:
Problem 12–4 (continued)
Fair-Value
Adjustment
1/1/2018 0
The unrealized holding gain of $3.79 would be recognized in Fuzzy
Monkey’s 2018 income statement.
Requirement 5
Fuzzy Monkey’s 2018 statement of cash flows would be affected as
follows:
Operating activities cash flows: Cash inflow from interest of
$3.2 + 3.2 = $6.4. (Note: if Fuzzy Monkey prepares an
indirect method statement of cash flows, it would have
If Fuzzy Monkey anticipates holding these investments for a
sufficiently long period, which seems likely given that it
Fair Value
Adjustment
Balance on 1/1/2018 $0
± Adjustment needed to update fair value ?
Balance needed on 12/31/2018 ($70 – 66.21) $3.79
Problem 12–4 (concluded)
Requirement 6
The answers to requirements 1–5 would not differ if the investment
Problem 12–5
Requirement 1
2018
March 31
September 1
September 30
October 2
1) Updating the fair-value adjustment:
Need to move from a fair-value adjustment of $0 to $25,000:
Fair-Value
Adjustment
3/31/2018 0
Note: the gain included in NI equals the difference between the proceeds
.
Fair Value
Adjustment
Balance on 3/31/2018 $0
± Adjustment needed to update fair value ?