On July 1, 2020, West Company purchased for cash, ten $10,000 bonds of North Corporation at a market rate of 6%. The bonds pay 5% interest, payable on a semiannual basis each July 1 and January 1, and mature on July 1, 2023. The bonds are classified as trading securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discounts or premiums. Ignore income taxes. a. Prepare a bond amortization schedule for the life of the bonds using the effective interest method. Note: Round each amount entered into the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Adjust market interest in the final year of the bond term for any net rounding difference.
On July 1, 2020, West Company purchased for cash, ten $10,000 bonds of North Corporation at a market rate of 6%. The bonds pay 5% interest, payable on a semiannual basis each July 1 and January 1, and mature on July 1, 2023. The bonds are classified as trading securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discounts or premiums. Ignore income taxes. a. Prepare a bond amortization schedule for the life of the bonds using the effective interest method. Note: Round each amount entered into the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Adjust market interest in the final year of the bond term for any net rounding difference.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
On July 1, 2020, West Company purchased for cash, ten $10,000 bonds of North Corporation at a market rate of 6%. The bonds pay 5% interest, payable on a semiannual basis each July 1 and January 1, and mature on July 1, 2023. The bonds are classified as trading securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discounts or premiums. Ignore income taxes.
a. Prepare a bond amortization schedule for the life of the bonds using the effective interest method.
Note: Round each amount entered into the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Adjust market interest in the final year of the bond term for any net rounding difference.
Transcribed Image Text:Recording Entries for TS-Effective Interest Method
Adjust FVA at Year-End
On July 1, 2020, West Company purchased for cash, ten $10,000 bonds of North Corporation at a market rate of 6%. The bonds pay 5% interest, payable on a semiannual basis each July 1 and January 1, and mature on
July 1, 2023. The bonds are classified as trading securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discounts or premiums. Ignore income taxes.
Amortization Schedule
Journal Entries in 2020
Journal Entries in 2021
a. Prepare a bond amortization schedule for the life of the bonds using the effective interest method.
Note: Round each amount entered into the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Adjust market interest in the final year of the bond term for any net
rounding difference.
Stated
Market
Discount
Bond
Date
Interest
Interest
Amortization Amortized Cost
Jul. 1, 2020
$
Jan. 1, 2021 $
0 $
0 $
Jul. 1, 2021
Jan. 1, 2022
Jul. 1, 2022
Jan. 1, 2023
Jul. 1, 2023
Total
$
0 $
0 $
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