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. d. Record the receipt of interest on January 1, 2021. e. Record the sale of all of the bonds on January 2, 2021, for $99,600. f. Record the adjustment to the Fair Value Adjustment account on December 31, 2021, assuming no additional TS investments. Note: List multiple debits or credits (when applicable) in alphabetical order. Note: Round each amount to the nearest whole dollar.
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. d. Record the receipt of interest on January 1, 2021. e. Record the sale of all of the bonds on January 2, 2021, for $99,600. f. Record the adjustment to the Fair Value Adjustment account on December 31, 2021, assuming no additional TS investments. Note: List multiple debits or credits (when applicable) in alphabetical order. Note: Round each amount to the nearest whole dollar.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
d. Record the receipt of interest on January 1, 2021.
e. Record the sale of all of the bonds on January 2, 2021, for $99,600.
f. Record the adjustment to the Fair Value Adjustment account on December 31, 2021, assuming no additional TS investments.
Note: List multiple debits or credits (when applicable) in alphabetical order.
Note: Round each amount to the nearest whole dollar.
Transcribed Image Text:**Financial Reporting Terms Explanation**
1. **Cash**: Represents money in hand or in a bank account that is available for immediate use.
2. **Interest Receivable**: The interest income that has been earned but not yet received.
3. **Investment in TS (Trading Securities)**: Investments in securities that are held for short-term profit.
4. **Fair Value Adjustment--TS (Trading Securities)**: Adjustments made to the value of trading securities to reflect their current market value.
5. **Investment in AFS Securities (Available-for-Sale Securities)**: Investments in securities that are not classified as trading or held-to-maturity.
6. **Fair Value Adjustment--AFS (Available-for-Sale Securities)**: Adjustments made to the value of available-for-sale securities to reflect their current market value.
7. **Investment in HTM Securities (Held-to-Maturity Securities)**: Investments in securities intended to be held until maturity.
8. **Investment in Stock**: Ownership of shares in a corporation or company.
9. **Fair Value Adjustment--Equity Securities**: Adjustments made to the value of equity securities to reflect their current market value.
10. **Fair Value Adjustment--Fair Value Option**: An option to measure financial instruments at fair value.
11. **Allowance for Credit Losses**: A reserve set aside for uncollected debts.
12. **Accumulated Other Comprehensive Income**: A component of equity that includes income not included in net income.
13. **Unrealized Gain or Loss--OCI (Other Comprehensive Income)**: Gains or losses on investments not yet realized through sale, recorded in other comprehensive income.
14. **Unrealized Gain or Loss--Income**: Gains or losses that have occurred but have not yet been realized.
15. **Dividend Revenue**: Income received from investments in equity securities.
16. **Interest Revenue**: Income earned from lending money or investing in interest-bearing assets.
17. **Investment Income**: Income generated from various investments.
18. **Loss on Impairment**: A decrease in the value of an asset expected to be permanent.
19. **Recovery of Loss on Impairment**: Restoration of a previously impaired asset's value.
20. **Loss on Sale of Investment**: Occurs when an investment is sold for less than its purchase price.
21. **Gain on Sale of Investment**: Occurs when an investment is sold for more than its purchase price.
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**
#### Tasks:
d. Record the receipt of interest on January 1, 2021.
e. Record the sale of all of the bonds on January 2, 2021, for $99,600.
f. Record the adjustment to the Fair Value Adjustment account on December 31, 2021, assuming no additional TS investments.
**Note**: List multiple debits or credits (when applicable) in alphabetical order.
**Note**: Round each amount to the nearest whole dollar.
### Table:
| Date | Account Name | Dr. | Cr. |
|---------------|---------------|-----|-----|
| **d. Jan. 1, 2021** | | 0 | 0 |
| **e. Jan. 2, 2021** | | 0 | 0 |
| **f. Dec. 31, 2021** | | 0 | 0 |
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