Recording Entries for HTM Debt Securities— Effective Interest Method On July 1, 2020, West Company purchased for cash, fifteen $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 held-to-maturity securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discount or premium. a. Prepare a bond amortization schedule for 2020 and 2021 using the effective interest method. Note: Round each amount entered into the schedule 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 Jul. 1, 2020 Answer Jan. 1, 2021 Answer Answer Answer Answer Jul. 1, 2021 Answer Answer Answer Answer b. Record the entry for the purchase of the bonds by West Company on July 1, 2020. c. Record the adjusting entry by West Company on December 31, 2020. The fair value of the bonds at December 31, 2020, was $153,900. Note: List multiple debits or credits (when applicable) in alphabetical order. Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero). Date Account Name Dr. Cr. b. Jul. 1, 2020 Answer Answer Answer Answer c. Dec. 31, 2020 Answer Answer Answer Answer Answer Answer

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Recording Entries for HTM Debt Securities— Effective Interest Method

On July 1, 2020, West Company purchased for cash, fifteen $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 held-to-maturity securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discount or premium.

a. Prepare a bond amortization schedule for 2020 and 2021 using the effective interest method.
Note: Round each amount entered into the schedule 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
Jul. 1, 2020				Answer
Jan. 1, 2021	Answer	Answer	Answer	Answer
Jul. 1, 2021	Answer	Answer	Answer	Answer

b. Record the entry for the purchase of the bonds by West Company on July 1, 2020.

c. Record the adjusting entry by West Company on December 31, 2020. The fair value of the bonds at December 31, 2020, was $153,900.

Note: List multiple debits or credits (when applicable) in alphabetical order.

Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero).

	Date	Dr.	Cr.
b.	Jul. 1, 2020	Answer	Answer
		Answer	Answer
c.	Dec. 31, 2020	Answer	Answer
		Answer	Answer
		Answer	Answer

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
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