Recording Entries for AFS Debt Securities- Effective Interest Method Adjust FVA at Sale and Year-End On July 1, 2020, West Company purchased for cash, six $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 $64,800. Note: List multiple debits or credits (when applicable) in alphabetical order.
Recording Entries for AFS Debt Securities- Effective Interest Method Adjust FVA at Sale and Year-End On July 1, 2020, West Company purchased for cash, six $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 $64,800. Note: List multiple debits or credits (when applicable) in alphabetical order.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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PLEASE ANSWER A THROUGH C
Transcribed Image Text:**Recording Entries for AFS Debt Securities—Effective Interest Method**
**Adjust FVA at Sale and Year-End**
On July 1, 2020, West Company purchased for cash, six $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**
**Instructions:**
1. **b.** Record the entry for the purchase of the bonds by West Company on July 1, 2020.
2. **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 $64,800.
**Notes:**
- List multiple debits or credits (when applicable) in alphabetical order.
- Round each amount to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.
**Journal Entry Table:**
| 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. | | |
Transcribed Image Text:**Recording Entries for AFS Debt Securities—Effective Interest Method**
**Adjust FVA at Sale and Year-End**
On July 1, 2020, West Company purchased for cash, six $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**
a. Prepare a bond amortization schedule for 2020 and 2021 using the effective interest method.
**Note:** Round each amount to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.
| Date | Stated Interest | Market Interest | Discount Amortization | Bond Amortized Cost |
|--------------|-----------------|-----------------|-----------------------|---------------------|
| July 1, 2020 | | | | |
| Jan. 1, 2021 | | | | |
| July 1, 2021 | | | | |
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