QUESTION 4

Recording Entries for AFS Debt Securities Effective Interest Method

Adjust FVA at Year-End

On July 1, 2020, West Company purchased for cash, twelve $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.

• Amortization Schedule
• Journal Entries and FS Presentation for 2020
• Journal Entries for 2021

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

Note: Round each amount entered into the schedule to the nearest whole dollar.

Date	Stated Interest	Market Interest	Discount Amortization	Bond Amortized Cost
Jul. 1, 2020				Answer
Jan. 1, 2021	Answer	Answer	Answer	Answer
Jul. 1, 2021	Answer	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 adjust the investment to fair value. The fair value of the bonds at December 31, 2020, was $121,500.

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
c.	Dec. 31, 2020
		To accrue interest revenue
	Dec. 31, 2020
		To adjust investment to fair value