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Return to question Problem 12-2 Trading securities; bond investment; effective interest L 012-1, 12-3) Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $80 million of 8% 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 10%. The price paid for the bonds was $66 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 $70 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 investmen 4-b. Prepare any entry necessary to achieve this reporting objective 5. How would Fuzzy Monkeys 2018 statement of cash flows be affected by this investment? nt in the December 31, 2018, balance sheet? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below.
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Answer can be rounded per question requiremente.g. 2 decimal or less or more Solution: Treated as Trading Securities: ounal entries Date Account title and explaination Debit Credit $ 80.00 1) Jan.01 nvestment in Bonds (plug) $ 14.00 $ 66.00 Discount on Bonds Investment Cash To record the investment in bonds) |Cash (80*496) Discount on Bonds Investment Interest Revenue (66*5%) To record the interest revenue) 2018 S 3.20 $ 0.10 2) |Jun.30 2018 (plug) S 3.30 S 3.20 $ 0.11 3) | Dec.31 2018 | Cash (80*496) (plug) Discount on Bonds Investment Interest Revenue (66+0.10)*5% To record the interest revenue) $ 3.31 70.00 at fair value, because bonds are being treated as trading securities. 4)b Date Account title and explaination Debit Credit $ 3.79 Dec.31 Fair value adjustment (70) (66+0.10+0.11) 2018 $ 3.79 Unrealized holding Gain NI To record the adjustment) Operating Cash Flow Investing Cash Flow $ 59.60 Outflow (66 3.20 3.20) No effect b)

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