Problem 12-3 (Algo) Securities available-for-sale; bondinvestment; effective interest [LO12-1, 12-4]
Fuzzy Monkey Technologies, Inc., purchased as a long-terminvestment $180 million of 6% bonds, dated January 1, on January 1,2021. Management intends to have the investment available for salewhen circumstances warrant. For bonds of similar risk and maturitythe market yield was 8%. The price paid for the bonds was $160million. Interest is received semiannually on June 30 and December31. Due to changing market conditions, the fair value of the bondsat December 31, 2021, was $170 million.
Required:
1. to 3. Prepare the relevant journal entries onthe respective dates (record the interest at the effectiverate).
4-a. At what amount will Fuzzy Monkey report itsinvestment in the December 31, 2021, balance sheet?
4-b. Prepare the entry necessary to achieve thisreporting objective.
5. How would Fuzzy Monkey's 2021 statement of cashflows be affected by this investment? (If more than one approach ispossible, indicate the one that is most likely.)
