On July 1, 2020, West Company purchased for cash, three $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. 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 $32,400. Note: List multiple debits or credits (when applicable) in alphabetical order. Note: Round each amount to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. d. Indicate the effects of this investment on the 2020 income statement and year-end balance sheet. Note: List accounts in alphabetical order. Note: Do not use a negative sign for an account with a normal balance.
On July 1, 2020, West Company purchased for cash, three $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. 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 $32,400. Note: List multiple debits or credits (when applicable) in alphabetical order. Note: Round each amount to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. d. Indicate the effects of this investment on the 2020 income statement and year-end balance sheet. Note: List accounts in alphabetical order. Note: Do not use a negative sign for an account with a normal balance.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
On July 1, 2020, West Company purchased for cash, three $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.
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 $32,400.
- Note: List multiple debits or credits (when applicable) in alphabetical order.
- Note: Round each amount to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.
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.
![On July 1, 2020, West Company purchased for cash, three $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.
Amortization Schedule
Journal Entries and FS Presentation for 2020
Journal Entries for 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 $32,400.
Note: List multiple debits or credits (when applicable) in alphabetical order.
• Note: Round each amount to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.
Date
Account Name
Dr.
Cr.
b.
July 1, 2020
C.
Dec. 31, 2020
To accrue interest revenue.
Dec. 31, 2020
To adjust investment to fair value.
d. Indicate the effects of this investment on the 2020 income statement and year-end balance sheet.
• 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
Stockholders' Equity
$](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe8276f06-c3ad-4934-bedb-202c9ab550cd%2F1c0fe637-1f98-462c-ae05-042c53eb75a5%2Fb1kqw6t_processed.png&w=3840&q=75)
Transcribed Image Text:On July 1, 2020, West Company purchased for cash, three $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.
Amortization Schedule
Journal Entries and FS Presentation for 2020
Journal Entries for 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 $32,400.
Note: List multiple debits or credits (when applicable) in alphabetical order.
• Note: Round each amount to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.
Date
Account Name
Dr.
Cr.
b.
July 1, 2020
C.
Dec. 31, 2020
To accrue interest revenue.
Dec. 31, 2020
To adjust investment to fair value.
d. Indicate the effects of this investment on the 2020 income statement and year-end balance sheet.
• 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
Stockholders' Equity
$
![Cash
Interest Receivable
Investment in TS
Fair Value Adjustment--TS
Investment in AFS Securities
Fair Value Adjustment--AFS
Investment in HTM Securities
Investment in Stock
Fair Value Adjustment--Equity Securities
Fair Value Adjustment--Fair Value Option
Allowance for Credit Losses
Accumulated Other Comprehensive Income
Unrealized Gain or Loss--OCI
Unrealized Gain or Loss--Income
Dividend Revenue
Interest Revenue
Investment Income
Loss on Impairment
Recovery of Loss on Impairment
Loss on Sale of Investment
Gain on Sale of Investment
N/A](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe8276f06-c3ad-4934-bedb-202c9ab550cd%2F1c0fe637-1f98-462c-ae05-042c53eb75a5%2Fpqycv0b_processed.png&w=3840&q=75)
Transcribed Image Text:Cash
Interest Receivable
Investment in TS
Fair Value Adjustment--TS
Investment in AFS Securities
Fair Value Adjustment--AFS
Investment in HTM Securities
Investment in Stock
Fair Value Adjustment--Equity Securities
Fair Value Adjustment--Fair Value Option
Allowance for Credit Losses
Accumulated Other Comprehensive Income
Unrealized Gain or Loss--OCI
Unrealized Gain or Loss--Income
Dividend Revenue
Interest Revenue
Investment Income
Loss on Impairment
Recovery of Loss on Impairment
Loss on Sale of Investment
Gain on Sale of Investment
N/A
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