Problem 12-2 (Algo) Trading securities; bond investment; effective interest [LO12-1, 12-3]

Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $180 million of 6% bonds, dated January 1, on January 1, 2021. Management intends to include the investment in a short-term, active trading portfolio. For bonds of similar risk and maturity the market yield was 8%. The price paid for the bonds was $160 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, 2021, was $170 million.

Required:

1. to 3.Prepare the relevant journal entries on the respective dates (record the interest at the effective rate).

4-a.At what amount will Fuzzy Monkey report its investment in the December 31, 2021 balance sheet?

4-b.Prepare any entry necessary to achieve this reporting objective.

5.How would Fuzzy Monkey's 2021 statement of cash flows be affected by this investment? (If more than one approach is possible, indicate the one that is most likely.)

Spiceland INT_10e_Rechecks_2019_11_01