Investment in Bonds On January 11, 2000, Flank Corporation invested $700,000 of cash held for future investment

Question:

Investment in Bonds On January 11, 2000, Flank Corporation invested $700,000 of cash held for future investment in 5-year bonds issued by Tuna Corporation. The bonds pay 7 percent interest annually. Flank plans to hold the bonds until they mature.

a. If interest rates increase during 2000 and the market price of the bonds declines to $674,000 by December 31, why is it not necessary for Flank Corporation to adjust the bonds to current market price at December 31, 2000?

b. What action relating to financial reporting, if any, should Flank take if the market value of the bonds declines to

$635,000 in December 2000 as a result of an announcement by Tuna Corporation that reduced profits may require the company to cease operations?

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