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.Amortization ScheduleJournal Entries and FS Presentation for 2020Journal Entries for 2021b. 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 $32,400.Note: List multiple debits or credits (when applicable) in alphabetical order.• Note: Round each amount to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.DateAccount NameDr.Cr.b.July 1, 2020C.Dec. 31, 2020To accrue interest revenue.Dec. 31, 2020To adjust investment to fair value.d. Indicate the effects of this investment on the 2020 income statement and year-end balance sheet.• Note: List accounts in alphabetical order.• Note: Do not use a negative sign for an account with a normal balance.Income Statement2020Other revenues and Gains$Balance Sheet, December 312020AssetsStockholders' Equity$ CashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A

Available for Sale (AFS): When investments are made in securities with an intention to make profit…

Answered: On July 1, 2020, West Company purchased…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Concept explainers

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 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.
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

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Expert Solution

Step by step

Solved in 6 steps with 6 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.