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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

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 AFS securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discount or premium.

a. bond amortization schedule for 2020 and 2021 using the effective interest method.

Note:Round each amount to the nearest whole dollar.Use the rounded amount for later calculations in the schedule.

DateStatedMarketDiscountBondInterestInterestAmortizationAmortized CostJuly 1, 2020Answer

Jan. 1, 2021Answer

Answer

Answer

Answer

July 1, 2021Answer

Answer

Answer

Answer

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 adjustthe investment to fair value. The fair value of the bonds at December 31, 2020, was $162,000.

  • Note:List multiple debits or credits (when applicable) in alphabetical order.
  • Note:Round each amount to the nearest whole dollar.Use the rounded amount for later calculations in the schedule.

DateAccount NameDr.Cr.b.July 1, 2020Answer

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

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

N/A

Answer

Answer

c.Dec. 31, 2020Answer

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

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

N/A

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

N/A

Answer

Answer

To accrue interest revenue.Dec. 31, 2020Answer

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

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

N/A

Answer

Answer

To adjust investment to fair value.

d.Indicate the effects of this investment on the 2020 income statement and year-end balance sheet.

  • Note:List accounts in alphabetical order.
  • Note:Do not use a negative sign for an account with a normal balance.

Income Statement2020Other revenues and GainsAnswer

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

Answer

Balance Sheet, December 312020AssetsAnswer

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

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

N/A

Answer

Stockholders' EquityAnswer

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

Answer

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

DateAccount NameDr.Cr.Jan. 1, 2021Answer

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

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

N/A

Answer

Answer

f. After the interest receipt on July 1, 2021, four of the bonds were sold for $38,600 cash.

(1) Record the receipt of interest on July 1, 2021.

(2) Record the entry to adjust the two bonds to fair value (FV-OCI).

(3) Record the sale, eliminating the associated Fair Value Adjustment account balance. For simplicity, ignore any fair value adjustments in 2021 related to the six remaining bonds.

  • Note:List multiple debits or credits (when applicable) in alphabetical order.
  • Note:Round each amount to the nearest whole dollar.

DateAccount NameDr.Cr.(1)July. 1, 2021Answer

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

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

N/A

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

N/A

Answer

Answer

To record receipt of interest.(2)July. 1, 2021Answer

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

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

N/A

Answer

Answer

To adjust to fair value investments to be sold.(3)July. 1, 2021Answer

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

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

N/A

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

N/A

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

N/A

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

N/A

Answer

Answer

To record sale of investments.

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