Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $140 million of 10% 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 12%. The price paid for the bonds was $124 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 $130 million.
5. How would Fuzzy Monkey's 2018 statement of
cash flows be affected by this investment?
The answer is not 14 or 14.91 for operating Cash Flow
Investment in Trading securities is treated as an operating activity.
Investment in Available for sale securities is treated as a financing activity
| 5. Effect of investment on the statement of cash flows | |||
| Operating cash flow [Refer working note] | $110 | million | outflow |
| Investment cash flow | $0 | million | No effect |
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| Working note - Operating cash flow: | |||
| Cash paid for the bonds (trading securities) | $124 | million | outflow |
| Cash receipt of interest ($140 million x 10%) | $14 | million | Inflow |
| Net operating Cash flow [$124 million - $14 million] | $110 | million | Outflow |
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