a. Prepare a bond amortization schedule for 2020 and 2021 using the effective interest method. Note: Round each amount entered into the schedule to the nearest whole dollar. Date Stated Interest Market Interest Discount Amortization Bond Amortized Cost Jul. 1, 2020 Jan. 1, 2021 Jul. 1, 2021 b. Record the entry for the purchase of the bonds by West Company on July 1, 2020. c. Record the adjusting entries by West Company on December 31, 2020, to accrue interest revenue and adjust the investment to fair value. The fair value of the bonds at December 31, 2020, was $64,800.
On July 1, 2020, West Company purchased for cash, six $10,000 bonds of North Corporation to yield 10%. The bonds pay 9% interest, payable on a semiannual basis each July 1 and January 1, and mature on July 1, 2023. The bonds are classified as AFS securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discount or premium.
a. Prepare a bond amortization schedule for 2020 and 2021 using the effective interest method.
Note: Round each amount entered into the schedule to the nearest whole dollar.
| Date | Stated Interest |
Market Interest |
Discount Amortization |
Bond Amortized Cost |
|---|---|---|---|---|
| Jul. 1, 2020 | ||||
| Jan. 1, 2021 | ||||
| Jul. 1, 2021 |
b. Record the entry for the purchase of the bonds by West Company on July 1, 2020.
c. Record the
Note: List multiple debits or credits (when applicable) in alphabetical order.
Note: Round each amount to the nearest whole dollar.
| Date | Account Name | Dr. | Cr. | |
|---|---|---|---|---|
| b. | Jul. 1, 2020 | |||
| c. | Dec. 31, 2020 | |||
| Dec. 31, 2020 | ||||
d. Indicate the effects of this investment on the 2020 income statement and year-end
Note: List accounts in alphabetical order.
Note: Do not use a negative sign for an account with a normal balance.
| Income Statement | 2020 |
|---|---|
| Other Revenues and Gains | |
| Balance Sheet, December 31 | 2020 |
|---|---|
| Assets | |
Record the receipt of interest on January 1, 2021.
f. After the interest receipt on July 1, 2021, two of the bonds were sold for $15,440 cash. Record the entry for (1) the receipt of interest and (2) the sale of the bond investment.
g. On December 31, 2021, the company’s year-end, record the entry to eliminate the Fair Value Adjustment balance associated with the two bonds sold.
Note: List multiple debits or credits (when applicable) in alphabetical order.
Note: Round each amount to the nearest whole dollar.
| e. | Jan. 1, 2021 | Account Name | Dr. | Cr. |
| f. | Jul. 1, 2021 | |||
| Jul. 1, 2021 | ||||
| g. | Dec. 31, 2021 | |||
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