Recording Entries for TS—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 at a market rate of 4%. The bonds pay 5% interest, payable on a semiannual basis each July 1 and January 1, and mature on July 1, 2023. The bonds are classified as trading securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discounts or premiums. Ignore income taxes. Amortization Schedule Journal Entries in 2020 Journal Entries in 2021 d. Record the receipt of interest on January 1, 2021. e. Record the sale of all of the bonds on January 2, 2021, for $66,400. f. Record the adjustment to the Fair Value Adjustment account on December 31, 2021, assuming no additional TS investments. Note: List multiple debits or credits (when applicable) in alphabetical order. Note: Round each amount to the nearest whole dollar. Note: If 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. d. Jan. 1, 2021 e. Jan. 2, 2021 To adjust investment to fair value Jan. 2, 2021 To record the sale of investment f. Dec. 31, 2021

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Recording Entries for TS—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 at a market rate of 4%. The bonds pay 5% interest, payable on a semiannual basis each July 1 and January 1, and mature on July 1, 2023. The bonds are classified as trading securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discounts or premiums. Ignore income taxes.

Amortization Schedule
Journal Entries in 2020
Journal Entries in 2021

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

e. Record the sale of all of the bonds on January 2, 2021, for $66,400.

f. Record the adjustment to the Fair Value Adjustment account on December 31, 2021, assuming no additional TS investments.

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

Note: Round each amount to the nearest whole dollar.

Note: If 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
d.	Jan. 1, 2021

e.	Jan. 2, 2021

		To adjust investment to fair value
	Jan. 2, 2021


		To record the sale of investment
f.	Dec. 31, 2021

**Recording Entries for TS—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 at a market rate of 4%. The bonds pay 5% interest, payable on a semiannual basis each July 1 and January 1, and mature on July 1, 2023. The bonds are classified as trading securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discounts or premiums. Ignore income taxes.

**Related Materials:**
- [Amortization Schedule]
- [Journal Entries in 2020]
- [Journal Entries in 2021]

**Required Journal Entries:**

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

e. Record the sale of all of the bonds on January 2, 2021, for $66,400.

f. Record the adjustment to the Fair Value Adjustment account on December 31, 2021, assuming no additional TS investments.

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

**Note:** Round each amount to the nearest whole dollar.

**Instructions:** If 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. |
|----------------|---------------------------------------------|-------|-------|
| **d. Jan. 1, 2021** | | 0 | 0 |
| **e. Jan. 2, 2021** | | 0 | 0 |
| Jan. 2, 2021 | To adjust investment to fair value | 0 | 0 |
| | | | |
| | | | |
| **f. Dec. 31, 2021** | To record the sale of investment | 0 | 0 |

**Note:** Please answer all parts of the question.

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