On July 1 of Year 1, West Company purchased for cash, 20, $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 in three years on July 1. The bonds are classified as AFS securities. West Company's annual reporting period ends December 31. Assume the effective interest method of amortization of any discount or premium. Note: When answering the following questions, round each amount to the nearest whole dollar. Amortization Schedule Journal Entries and Financial Statement Presentation for Year 1 b. Record the entry for the purchase of the bonds by West Company on July 1 of Year 1. Date Jul 1, Year 1 Date Dec. 31, Year 1 Dec. 31, Year 1 To record purchase of bands c. Record the adjusting entries by West Company on December 31 of Year 1 to accrue interest revenue and adjust the investment to fair value. The fair value of the bonds at December 31 was $202,500. Account Name Income Statement Other Revenues Assets To accrue interest revenue. Interest revenue Account Name Interest receivable Balance Sheet, December 31 d. Indicate the effects of this investment on the Year 1 income statement and year-end balance sheet. Ignore cash. Note: Do not use a negative sign for an account with a normal balance. Debit S S Investment in AFS Securities Stockholders Equity Accumulated other comprehensive income s Credit Debit Journal Entries for Year 2 Credit

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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On July 1 of Year 1, West Company purchased for cash, 20, $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 in three years on July 1. The bonds are classified as AFS securities. West Company's annual reporting period ends December 31. Assume the effective interest method of
amortization of any discount or premium.
Note: When answering the following questions, round each amount to the nearest whole dollar.
Amortization Schedule
Journal Entries and Financial Statement Presentation for Year 1
b. Record the entry for the purchase of the bonds by West Company on July 1 of Year 1.
Date
Jul. 1, Year 1
Date
Dec. 31, Year 1
Dec. 31, Year 1
To record purchase of bonds.
Account Name
c. Record the adjusting entries by West Company on December 31 of Year 1 to accrue interest revenue and adjust the investment to fair value. The fair value of the bonds at December 31 was $202,500.
Assets
To accrue interest revenue.
Income Statement
Other Revenues
Account Name
To adjust investment to fair value.
Interest revenue $
Balance Sheet, December 31
Debit
d. Indicate the effects of this investment on the Year 1 income statement and year-end balance sheet. Ignore cash.
• Note: Do not use a negative sign for an account with a normal balance.
Interest receivable
Investment in AFS Securities
Stockholders' Equity
Accumulated other comprehensive income $
$
$
Credit
Debit
Journal Entries for Year 2
Credit
Transcribed Image Text:On July 1 of Year 1, West Company purchased for cash, 20, $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 in three years on July 1. The bonds are classified as AFS securities. West Company's annual reporting period ends December 31. Assume the effective interest method of amortization of any discount or premium. Note: When answering the following questions, round each amount to the nearest whole dollar. Amortization Schedule Journal Entries and Financial Statement Presentation for Year 1 b. Record the entry for the purchase of the bonds by West Company on July 1 of Year 1. Date Jul. 1, Year 1 Date Dec. 31, Year 1 Dec. 31, Year 1 To record purchase of bonds. Account Name c. Record the adjusting entries by West Company on December 31 of Year 1 to accrue interest revenue and adjust the investment to fair value. The fair value of the bonds at December 31 was $202,500. Assets To accrue interest revenue. Income Statement Other Revenues Account Name To adjust investment to fair value. Interest revenue $ Balance Sheet, December 31 Debit d. Indicate the effects of this investment on the Year 1 income statement and year-end balance sheet. Ignore cash. • Note: Do not use a negative sign for an account with a normal balance. Interest receivable Investment in AFS Securities Stockholders' Equity Accumulated other comprehensive income $ $ $ Credit Debit Journal Entries for Year 2 Credit
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