I am stuck on question "g."
On July 1 of the current year, West Company purchased for cash, 18, $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 in three years on July 1. 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. Note: When answering the following questions, round each amount to the nearest whole dollar. a. Prepare a bond amortization schedule for the current year and the following year using the effective interest method. Date Stated Interest Jul. 1, Year 1 Jan. 1, Year 2 $ Jul. 1, Year 2 Market Discount Bond Interest Amortization Amortized Cost $ 175,432 8,772 $ 672 176,104 8,805 705 176,809 8,100 $ 8,100 b. Record the entry for the purchase of the bonds by West Company on July 1. Debit Credit 0 Date Account Name Jul. 1, Year 1 Investment in AFS Securities Cash To record purchase of bonds. 175,432 0 175,432 c. Record the adjusting entries by West Company on December 31 to accrue interest revenue and adjust the investment to fair value. The fair value of the bonds at December 31 was $182,250. Debit Credit 0 8,100 672 0 0 8,772 Date Account Name Dec. 31, Year 1 Interest Receivable Investment in AFS Securities Interest Revenue To accrue interest revenue. Dec. 31, Year 1 Fair Value Adjustment-AFS Unrealized Gain or Loss-OCI To adjust investment to fair value. 0 6,146 0 6,146 d. Indicate the effects of this investment on the income statement for the year and year-end balance sheet. Ignore cash. Note: Do not use a negative sign for an account with a normal balance. Income Statement Other Revenues and Gains Interest revenue $ 8,772 Balance Sheet, December 31 Assets Interest receivable $ Investment in AFS Securities $ Stockholders' Equity Accumulated other comprehensive income $ 8,100 182,250 6,146 e. Record the receipt of interest on January 1 of the following year. Debit Credit 8,100 Date Account Name Jan. 1, Year 2 Cash Interest Receivable To record receipt of interest. 0 0 8,100 0 f. After the interest receipt on July 1, two of the bonds were sold for $17,756 cash. Record the entry for (1) the receipt of interest and (2) the sale of the bond investment. Debit Credit 8,100 0 705 0 8,805 V 0 Date Account Name Jul. 1, Year 2 Cash Investment in AFS Securities Interest Revenue To record receipt of interest. Jul. 1, Year 2 Cash Loss on Sale of Investment Investment in AFS Securities To record sale of investment. V 17,756 0 V 1,889 0 0 19,645 g. On December 31, the company's year-end, record the entry to eliminate the Fair Value Adjustment balance associated with the two bonds sold. Account Name Debit Credit Date Dec. 31, Year 2 To eliminate FVA account balance
