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Recording Entries for HTM Debt Securities Effective Interest Method

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

• Amortization Schedule
• Journal Entries in 2020
• Financial Statement Presentation
• Journal Entries in 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. Use the rounded amount for later calculations in the schedule.

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

Please answer all parts of the question.

b. Record the entry for the purchase of the bonds by West Company on July 1, 2020.

c. Record the adjusting entry by West Company on December 31, 2020. 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: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero).

	Date	Account Name	Dr.	Cr.
b.	Jul. 1, 2020	AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer	Answer
		AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer	Answer
c.	Dec. 31, 2020	AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer	Answer
		AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer	Answer
		AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer	Answer

Please answer all parts of the question.

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

Note: List accounts in alphabetical order.

Income Statement	2020
Other Revenues and Gains
AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer

Balance Sheet	December 31, 2020
Assets
AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer
AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer

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

f. After the interest payment on July 1, 2021, two of the bonds were sold for $38,600 cash. Provide the required entries on July 1, 2021.

Note: List multiple debits or credits (when applicable) in alphabetical order.

Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero).

	Date	Account Name	Dr.	Cr.
e.	Jan. 1, 2021	AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer	Answer
		AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer	Answer
f.	Jul. 1, 2021	AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer	Answer
		AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer	Answer
		AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer	Answer
		To record receipt of interest.
	Jul. 1, 2021	AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer	Answer
		AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer	Answer
		AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer	Answer
		To record sale of bonds.

Please answer all parts of the question.