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Recording Entries for TS-Effective Interest Method Adjust FVA at Year-End On July 1, 2020, West Company purchased for cash, twelve $10,000 bonds of North Corporation at a market rate of 6%. 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 a. Prepare a bond amortization schedule for the life of the bonds 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. Adjust market interest in the final year of the bond term for any net rounding difference. Stated Market Discount Bond Date Interest Interest Amortization Amortized Cost Jul. 1, 2020 $ 116,750 Jan. 1, 2021 $ 3,000 $ 3,503 $ 503 117.253 Jul. 1, 2021 3,000 3,518 518 117,771 Jan. 1, 2022 3,000 3,533 118,304 Jul. 1, 2022 3,000 3,549 549 118,853 Jan. 1, 2023 3,000 3,566 119,426 x Jul. 1, 2023 3,000 3,581 120,000 Total 18,000 $ 21,250 3,250 533 566 581 $ $ . 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 record the unrealized gain or loss. The fair value of the bonds on December 31, 2020, was $124,500. Note: List multiple debits or credits (when applicable) in alphabetical order. Note: Round each amount to the nearest whole dollar. Date Account Name Dr. Cr. b. Jul. 1, 2020 Investment in TS 116,750 Cash 116,750 c Dec 31, 2020 Interest Receivable 3,000 Investment in TS 0 Interest Revenue 3,503 To accrue interest revenue Dec. 31, 2020 Fair Value Adjustment--TS 116,750 x Unrealized Gain or Loss--Income 503 x To record unrealized gain or loss > > > 0 503 > > 0 > > 0 Check d. Record the receipt of interest on January 1, 2021. e. Record the sale of all of the bonds on January 2, 2021, for $124,500. 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. Date Account Name d. Jan 1, 2021 Cash 3,000 Interest Receivable 3,000 Jan. 2, 2021 Cash 124,500 Fair Value Adjustment-AFS 120,000 x Unrealized Gain or Loss--Income 4,500 x f. Dec. 31, 2021 N/A Dr. Cr. > 0 > 0 X X X OX N/A X 0 0X
