Answered: Recording Entries for HTM Debt…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 7E

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Recording Entries for HTM Debt Securities— Effective Interest Method

On July 1, 2020, West Company purchased for cash, sixteen $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.

e. Record the receipt of interest on January 1, 2021.

f. After the interest payment on July 1, 2021, two of the bonds were sold for $38,600 cash. Provide the required entries on July 1, 2021.

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).

Recording Entries for HTM Debt Securities- Effective Interest Method
On July 1, 2020, West Company purchased for cash, sixteen $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.
Amortization Schedule
Journal Entries in 2020
Financial Statement Presentation
Journal Entries in 2021
e. Record the receipt of interest on January 1, 2021.
f. After the interest payment on July 1, 2021, two of the bonds were sold for $38,600 cash. Provide the required entries on July 1, 2021.
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.
e. Jan. 1, 2021
f.
Jul. 1, 2021
To record receipt of interest.
Jul. 1, 2021
To record sale of bonds.

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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