Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $160 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 $142 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 $150 million.
Required: 1. Prepare the journal entry to record Fuzzy Monkey's investment on January 1, 2013.
a. Record the Fuzzy Monkey's investment on bonds on January 1, 2013.
2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2013 (at the effective rate).
a.Record the interest revenue on June 30, 2013.
3. Prepare the journal entry by Fuzzy Monkey to record interest on December 31, 2013
a. record interest revenue
4. At what amount will Fuzzy Monkey report its investment in the December 31, 2013, balance sheet?
5. Prepare an entry necessary to achieve the reporting objective.
a. fair value adjustment
6. How would Fuzzy Monkey's 2013 statement of cash flows be affected by this investment?
a. Operating CF
b. Investing CF