Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $100 million of 8% bonds, dated January 1, on January 1, 2013. Management intends to include the investment in a short-term, active trading portfolio. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $82 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, 2013, was $90 million.
1. Prepare the journal entry to record Fuzzy Monkey’s investment on January 1, 2013.
2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2013 (at the effective rate).
3. Prepare the journal entry by Fuzzy Monkey to record interest on December 31, 2013 (at the effective rate).
4-a. At what amount will Fuzzy Monkey report its investment in the December 31, 2013, balance sheet?
4-b. Prepare an entry necessary to achieve the reporting objective in 4-a.
5. How would Fuzzy Monkey's 2013 statement of cash flows be affected by this investment?
Operating cash flow$ (Click to select)inflow,flowout,flow
Investing cash flow$ (Click to select)inflow,flowout,flow