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Question - Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $230 million of 10% bonds, dated January 1, on January 1, 2018. Management intends to include the investment in a short-term, active trading portfolio. For bonds of similar risk and maturity the market yield was 12%. The price paid for the bonds was $210 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 $220 million.
Required -
1. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate).
2-a. At what amount will Fuzzy Monkey report its investment in the December 31, 2018, balance sheet?
2-b. Prepare any entry necessary to achieve this reporting objective.
3. How would Fuzzy Monkey's 2018 statement of cash flows be affected by this investment?
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