Question
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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