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.

• Amortization Schedule
• Journal Entries and Financial Statement Presentation for Year 1
• Journal Entries for Year 2

b. Record the entry for the purchase of the bonds by West Company on July 1.

Date	Account Name	Debit	Credit
Jul. 1, Year 1	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A		Answer
	To record purchase of bonds.

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.

Date	Account Name	Debit	Credit
Dec. 31, Year 1	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ANo list available		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ANo list available		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ANo list available		Answer
	To accrue interest revenue.
Dec. 31, Year 1	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ANo list available		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ANo list available		Answer
	To adjust investment to fair value.

d. Indicate the effects of this investment on the income statement for the year and year-end balance sheet. Note: Do not use a negative sign for an account with a normal balance.

Income Statement
Other Revenues and Gains
Interest revenue	Answer

Balance Sheet, December 31
Assets
Interest receivable	Answer
Investment in AFS Securities	Answer
Stockholders' Equity
Accumulated other comprehensive income	Answer

e. Record the receipt of interest on January 1 of the following year.

Date	Account Name	Debit	Credit
Jan. 1, Year 2	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ANo list available		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ANo list available		Answer
	To record receipt of interest.

f. After the interest receipt on July 1, two of the bonds were sold for $17,756 cash. 1. Record the receipt of interest on July 1. 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 related to the remaining bonds.

Date	Account Name	Debit	Credit
Jul. 1, Year 2	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ANo list available		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ANo list available		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ANo list available		Answer
	To record receipt of interest.
Jul. 1, Year 2	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ANo list available		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ANo list available		Answer
	To adjust investment to be sold to fair value.
Jul. 1, Year 2	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ANo list available		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ANo list available		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ANo list available		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ANo list available		Answer
	CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity Securities Fair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ANo list available		Answer
	To record sale of investment.

PreviousSave AnswersNext